I love my NewsGator and Technorati key word search feeds – they help me find the most interesting things.  A NewsGator key word search on “Ryan McIntyre” picked up this post by Chan Chaiyochlarb titled If you are going to launch a startup, how many friends would you need?

It’s a neat table of the number of founders for Microsoft, Google Youtube, Yahoo!, Overture, eBay, PayPal, Skype, Kazaa, Hotmail, Ask.com, Excite (where Ryan’s name showed up), Napster, Lycos, Amazon, Apple, MySpace, Facebook, Netscape, AOL, Mirabilis, and Digg.  The average number of founders – 2.09.

My first company – Feld Technologies (1987) – had two founders (me and Dave Jilk).  The first company I funded as an angel investor (NetGenesis: 1994) had six founders that quickly dropped to four.  The second company I funded as an angel investor (Thinkfish: 1994) had four founders. Another early angel deal I did (Harmonix: 1995) had two founders as did Email Publishing (1996). The range from 1994 – 2000 seemed to be solidly between two and four.

I just looked through the companies I’m currently on the board of.  The number of founders range from 1 to 4 with a concentration of 2 and 3.  The few companies that have single company founders paired up with an experienced entrepreneur as CEO early in their life.

When I look at the list of my successful companies, the distribution is very similar.  Lots of two founder companies, a few threes, and a few fours.  I can’t think of a success case that I’ve been involved in with greater than four founders (although my partner Ryan can since Excite weighs in as the exception with six.)

Coming out of the Venture Capital in the Rockies conference, I was pleasantly surprised with how solid most of the presentations were.  There was plenty of pre-conference preparation, practice, and iteration from the companies presenting – and it showed.

A few weeks ago, one of my portfolio companies met with a prospective investor.  The company isn’t raising money – they are doing very well – but will be in the market at some point.  The VC they met with has expressed interest in the company several times in the past, is a long time friend of mine, and is a smart, thoughtful guy.

I spent five minutes with the CEO of my portfolio company preparing him for the meeting.  Our time was spent entirely on the background of the prospective VC and some suggestions about how to approach the meeting.  I spent 0 minutes looking at the company “fundraising presentation” (since we weren’t fundraising – it didn’t really cross my mind) and I took the meeting casually assuming the VC would be also be viewing this as a casual meeting.

The meeting was a disaster.  I saw the presentation after the fact – it was a “C” – not horrible, but not very good, and certainly not “VC pitch friendly.”  The VC immediately formed a negative opinion based on being presented with data and a bottoms up corporate presentation (rather than a clear presentation that lead him through the business systematically.)  The result – no interest in having any further conversations.

My assessment of the problem was that we approached things casually.  Even thought this wasn’t a real “decision meeting”, we should have either declined taking it now since we aren’t fundraising (my normal approach), or should have prepared and not been casual.  I wasn’t paying attention because the prospective investor was a long time friend that has consistently expressed interest in the company.  The result – the door is shut for a real conversation in the future.

Simple message – in all fundraising situations – don’t be casual.  The first impression counts a huge amount and sets the tone.  This is obvious, but even after doing hundreds of financings, I blew it this time.

It happens all the time.  You do something, don’t think hard about the implications of it, and then realize that you’ve “stepped in shit.”  I can’t count the number of times I’ve done this in business over the last 20+ years – at least I know how to clean my sneakers off quickly and efficiently.

Earlier today I had a phone call with an exec from one of my portfolio companies.  He did something recently that could only be characterized as stepping in shit. It ultimately came back around to me because of the various people involved.  It wasn’t a major thing (stepping in shit never is), but it was unpleasant, a little messy, and smelled bad.  My reaction – when I heard about it – was similar to the one I have after the aforementioned physical event.

We had a great, short talk.  He quickly got the implications of what he did, realized it wasn’t appropriate, and took corrective action.  But – more importantly – I think he learned from it.

Stepping in shit doesn’t hurt, isn’t life or death, but is unpleasant.  Learning how to walk a little more carefully through a field that is regularly visited by dogs is a healthy thing.

Last night at dinner Howard, Jason, Amy, Elizabeth, and I were discussing the JetBlue meltdown from last week (that continues today.)  The most bizarre thing to me was the relatively weak response from David Neeleman – the CEO – who is known for being outspoken, direct, and clear minded even in a difficult situation.  This morning’s New York Times finally has a strong quote from him in which he says he is mortified after fliers are stranded.

In this article, Neeleman shows he is very aware how badly JetBlue has screwed up dealing with this situation.  The article states “Mr. Neeleman said he would enact what he called a customer bill of rights that would financially penalize JetBlue — and reward passengers — for any repeat of the current upheaval. He said he would propose a plan to pay customers, after some amount of time, by the hour for being stranded on a plane.”

In addition to finally speaking up, Neeleman is quoted as saying “I can flap my lips all I want. Talk is cheap. Watch us.”

Shortly after reading the NY Times JetBlue article, I came across Sagi Rubin’s post titled A great startup CEO comparable in which he reminded us of the management greatness of Winston Wolf.

“So, pretty please, with sugar on top, clean the fucking car.”  I sure hope Neeleman has a Winston Wolf on his team to help him deliver on his promises.

A reader pointed me at this good, short post describing the shutdown of a service.  Failure is a part of the entrepreneurial experience and it’s even more valuable (although not necessarily fun) if you can learn a lesson from it.  The lesson here – well articulated by the author – is that he failed to address a point of pain.

After a brief email exchange today from an extremely smart and capable friend suggesting a potential feature for my blog, his response was “As usual, I’m nobody’s market.”  He provided a humorous followup to the comment “that’s a great blog title” from one of the people on the email thread with “Ah, if only I didn’t have to suck up to the world, that would be a great title for my contrarian-curmudgeon blog.”

Since I don’t feel the need to suck up to the world, I’ve stolen my friend’s blog post title.  It’s a great one that every investor and entrepreneur should keep in the front of his mind.  In one of my meetings today, someone asked me “Brad – I get what you are saying – but don’t you worry that you are too close to the technology and – as a result – too far ahead of the market?”

I responded that I’m quite clear that I’m not the broad target market.  I’m always trying to invest in (and help create) markets well before they are defined – and often build off a techy protocol that hasn’t yet emerged in the mainstream. For example, when I started playing around with RSS in 2004, there were plenty of technical folks that understood it well, but most of my conversations went “RS-what?” whenever I brought it up. Today, the majority of people I talk to have heard of RSS and a surprising number of them think they understand what it is, why it’s relevant, and what it enables.

Part of the fun (at least for me) of the way I approach things is that I love to get close to and roll around in the technology.  I’m nerdy enough to be able to be a very early adopter, fierce beta tester, scary difficult user, and occasional implementer.  But – I never forget that I’m not the ultimate market as – thankfully – the world isn’t made up of people like me.

I haven’t written much on failure since December so I was delighted to see several really insightful posts on the benefits and chocolatey goodness of failing.  It started with Jeremy Liew’s (a partner at Lightspeed) post titled Failure IS an option.   James Hong (the cofounder of HOTorNOT) followed up with a post titled Do YOU have the balls to try? Part 1 and Robert Young finished it off with a guest column on GigaOm titled Bankruptcy: The Opportunity to Fail.  Just remember – failure and success go together like chocolate and peanut butter.

Last year, the meme of “you can start a company for minimal capital” made the rounds.  This is still true.  But – it’s not trivial to scale a company for minimal capital (it’s possible, but an exception, not the norm.)  This meme is starting to make the rounds – Heather Green at BusinessWeek just wrote an article titled Make-or-Break Time For The Net Newbies.

Heather interviewed me for the article.  Since I only do interviews by email, I asked her if I could post our email exchange as further background to the article.  She kindly agreed as long as I waited until the article came out.  Here is the actual interview we did.  The questions Helen asked me are in italics.

Are we seeing companies getting wound down and why? (I.E. Is something deliberate going on rather than just observers making something out of nothing).  This is all totally normal.  There should be plenty of mortality among young, venture backed companies.  If there’s not, something weird is going on.  At this point, there were a lot of Series A investments in “Web 2.0” stuff done in 2006 – those companies are now running out of money and need to raise a Series B.  Some non-trivial percentage of these companies should not be able to raise a Series B for a variety of reasons, including (a) poor performance, (b) overly crowded segment where the companies are “me too” companies, (c) difficulties between management and the investors, and (d) “stuff just didn’t work.”  There’s nothing special going on here – it’s just the normal VC-backed company cycle.
 
Do you think that entrepreneurs and VCs are finding that though it is much much cheaper to start up companies these days, because of the rising competition with more companies getting funded, you now need to put in more money to make your company stand out? Any ballpark estimate of how much more?  It’s much less expensive to get started – that’s been well documented.  However, at some point you have to go from a web-based prototype to a business.  Many of the companies that were acquired by Google and Yahoo in the past 18 months were in this zone and they ended up getting bought before the moment of truth came.  This prompted lots and lots of me too companies – none of which will be bought by Google, Yahoo, or anyone else.  So – once these companies get a prototype up and running (their “beta”), the probably will need some money to get to the next level.  We’re now in that zone – where the rapid prototypes have flooded the market – and the companies that emerge will actually need to build out infrastructure (that costs money), a team (that costs money), a salesforce or channel (that costs money), deeper technical capability to scale the business (that costs money), and so on.  Fortunately, this time around, most rational people realize that it doesn’t take $75m to build a web-based software company – the number is more like $15m – $25m.  So – the money is spent slower and more intelligently in the success cases.
 
If that’s the case, how do you spend that money? What can work to help you stand out? (Examples would be great).  “Build it and they will come” happens rarely (e.g. Youtube).  However, when they come, you’ve got to put together a bunch of infrastructure and that costs money.  Most of the money is being spent on three things: (1) distribution, (2) engineering, and (3) infrastructure.  Distribution is the tricky one – it’s a combination of marketing, sales, and business development and you’ve got to get the mix right.  Many early stage companies don’t really know who their customer is, what their channel is, or how they are going to get to it, so the spend here is inefficient.
 
What lessons can be learned from the companies that are getting wound down? If you aren’t going to make it, take your medicine gracefully and move on.  Life is long and most successful entrepreneurs (and investors) have plenty of failures in their past. 
 
Are any companies you’re involved with going through this? Not right now, but it’s inevitable that some will.
 
Do you expect more companies shut down either soon or later this year? What kind of companies? (IE are there areas where there simply are too many companies?)  I think there will be a steady stream of failures.  That’s normal and should be no surprise to anyone.

One of the really cool things about entrepreneurship (and life in general) is being open to new people and new ideas.  I’ve written about my random days policy in the past.  Today I got the following note from Ed Sullivan, CEO of Aria.

Hello Brad, According to your blog you’re on the East Coast.  If by chance you’re in Philly, I’d love to buy you lunch, dinner or coffee.  I’ve gotten amazing value from your blog:  YEO, tools to negotiate my financing, corporate mission statement, life review etc. and I’d love to meet you face to face and shake your hand.  I promise not bore you with my business plan (I’m funded).

It turns out that I am in Philly for the night.  I arranged to meet with Ed before dinner and then decided to blow off my traveling companions (I was tired of them anyway) to go have a random dinner with Ed.  We grabbed a quick meal around the corner of the hotel and talked for ninety minutes like old friends.  As a faithful blog reader, he knew a spooky amount about me but I still managed to dig up a few new pieces of information for him.  We covered a lot of ground, especially since we both have had way too much experience with ISP billing systems in the 1990’s (Portal and RODAPI anyone?)

Among other things, we covered the entrepreneurial scene in Philly (and respective challenges post Internet bubble and the struggles of Safeguard Scientific and Internet Capital Group), my friend George Jankovic from NutriSystem, the ubiquitous Josh Kopelman, Lasik’s (I’m still a chicken), and Ed’s three companies (yes – we did end up talking about Aria – and it wasn’t boring.)  We also covered plenty of life stuff and each said nice things about our respective wives (hi Ed’s wife – yes – he met with me – just a normal guy – definitely not someone named Gloria the voluptuous.)

While I have no idea if anything ever comes of a dinner like this, I very much enjoyed spending time with my new friend Ed.  The randomness of the universe has nice karmic twists.  Plus – it’s way more fun than sitting in a hotel eating room service.  Ed – thanks for reaching out!