I got the following note the other day from a friend: After reading your latest post on Board Room Rules, I started thinking about the pressures that entrepreneurs experience starting, growing and managing start-up companies (whether it’s their first company or their fifth.) So I wonder if you as an investor/board member/partner/cheerleader have ever had to counsel your entrepreneurs on this topic and if so what advice did you dispense?
I’ve been helping create companies for 20 years (basically my entire business career.) I started when I was 19 and was way too young to have a clue. At times, I felt immense pressure, especially when we had no money and I had to make a payroll in three days. As an investor, I thought I’d never feel more pressure than in 1999 as I spent virtually every waking hour working. Then – 2001 came along. Ponder – for a moment – how you feel at the end of a really shitty day. I take a shower, crawl into bed, and think to myself that “tomorrow will be a new day.” However, By June of 2001, I’d realized that every day was worse than the previous day. So – that night as I crawled into bed, I thought to myself “tomorrow will be worse – no matter what – until one day when it isn’t. In the mean time, I’ll just deal with it.” And – I did. And – it eventually got better.
I’ve seen a lot of emotions in my 20 years in business. Lots of anger, lots of sadness, lots of joy, lots of depression, lots of enthusiasm, lots of euphoria. I prefer the joy, enthusiasm, and euphoria, but I know that the anger, sadness, and depression are part of the experience. One of the challenges of being an investor is having companies (and entrepreneurs) in different states simultaneously. On any given day, I’m likely at a meeting where the people around the table are in a happy place and then at a meeting where the people are in a not happy place. Repeat.
My simple advice – for all entrepreneurs – is “don’t take it personally.” Today, when someone yells at me or acts irrationally, I’m simply amused. I listen. I try to be constructive. But I don’t take it personally. I learned this from Amy – whenever she yells at me, I grab her by the shoulders and start jumping up and down and making funny loud noises until the dogs join in. While I rarely do this in a business context, I do the “business casual equivalent” of it.
A close friend once told me in the dark, dank, dismal depths of 2001 – “all’s well that ends.” It always does – eventually. How you deal with it while it’s in process is up to you.
Scott Converse (CEO of ClickCaster) has post summarizing his first board meeting. Todd Vernon (CEO of Lijit) does also (ok – his second board meeting.) Finally – Jeff Bussgang of IDG Ventures has a great post summarizing the infamous Venture Capital Monday Morning Partner’s Meeting.
I got the following email from AdBrite yesterday.
I had AdBrite adds on my blog for a while and had minimal revenue, so I took them off. I hadn’t thought about AdBrite for a while, so I clicked on the link.
Ooops is correct.
I got a great email from a reader in Europe in response to my The Demo post that said “Here in Europe we VCs refer to the practice of introducing portfolio companies as ‘Panda Mating’. It should work, there is a logical fit but somehow even if they do mate they very rarely conceive.” Panda Mating is a great metaphor, although I generally have better success with partnerships between portfolio companies as long as they are more than a Barney deal.
I also got a question from another reader asking me to define “top down vs. bottom up” demo. I much prefer “top down” demos – these are ones that approach the demo from a user / use case perspective. Show me what the software does and why I care, not how it does it. So, rather than start at the top left menu choice and go through each feature (usually starting with “creating a new account” which I never have to see again in my entire life), walk me through a use case that is relevant to me and is populated with a complete and interesting data set. Occasionally, I’ll have a “how” type question, but then it’ll be in the context of a use case, rather than a technical feature.
Several weeks ago, I brokered a meeting between two of my portfolio companies. One of them is relatively mature, has a good sized customer base, and a great set of products. The other one is very young, is a recent investment, has some great technology, but is just now bringing it to market.
The business synergy between the two companies is superb – they are both going after similar customers (they’ve already had a little overlap in their leads) and – for a segment of the market – have a comparable pricing and deployment model.
So – slam dunk, right? Get everyone in a room, have them show each other their stuff, and figure out where to go together – especially if everyone in the room is smart, very clued in, and predisposed to partner. I figured we’d walk out of there in 90 minutes with a clear plan of attack. I made the introductions, sketched out an agenda (YoungCo demo for 15 minutes, MatureCo demo for 15 minutes, then let’s figure stuff out) and then let folks go at it.
YoungCo’s demo was lousy. I’d seen the CEO pitch before and he usually does a great job, but for some reason he was off. Rather than a top down demo that gave a clear view of the product, he gave a ponderous bottoms up demo (e.g. “now, I’ll create a new user account, log in, and show you a screen with no data on it.”) It wandered, it rambled, and it took 45 minutes, and still didn’t get to show its stuff in a way that I thought MatureCo would light up on.
MatureCo’s demo wasn’t much better. Same story – in this case, they have an awesome pitch, but for some reason the person giving it followed YoungCo’s lead and went bottoms up. I was impatient at this point, so I jumped in more and tried to guide things around some, which probably didn’t help.
We finally got down to business 90 minutes into the meeting. Since everyone in the room was smart, they were able to appropriately abstract what they were seeing and we finally got on a coherent track. But – I wasn’t particularly proud of the first pass of either company. We ended up in a happy place and they’ve got some stuff rolling together, but if I hadn’t been an investor in both companies, I can imagine a situation where neither would have had the patience to work through things to get to a partnering point with the other.
In hindsight, I realized this was ultimately my fault. I assumed that both companies would be able to read my mind in advance of the meeting and I didn’t put the effort into framing things and setting the expectation in advance. I usually do this – in this case I just punted because the fit between the two seemed so obvious to me.
However, if each company had started with a tight, top down demo, the entire tone would have been different. I learned – early in my first company – that the first 15 minutes of a meeting will make it or break it. I learned how to do a great demo – even if it was simply my sales pitch on a white board or flip chart. This meeting reminded me how important it is for a young company (and a MatureCo) to be able to nail their demo and do it quickly.
Yesterday, I was on a conference call with an entrepreneur that I’ve backed in the past. He wanted to walk me through the idea for a new business that he was working on. His goal was simply to get feedback from me at the very early stage of his idea – he wasn’t pitching me for an investment. We got about five minutes into the pitch when I interrupted him.
I’m an angel investor in a company that is addressing the same domain as him, uses similar language, and is going after a comparable problem. I didn’t get far enough into things to know if there was a direct conflict, but I know that the company I’m an investor in is rapidly evolving their business from what their website says based on customer reactions – and the path they are on sounded very familiar to what I was hearing from my friend.
I raised a yellow flag, paused the conversation, and expressed my discomfort. My friend knew the company, knew I was an investor, and explained that he thought they were a little different. But – I wasn’t sure – especially given where I think the company is heading. I was uncomfortable – and told my friend this – since I didn’t want him to pitch the idea to me in detail unless he was completely comfortable that all the ideas might already be being incorporated into this other business. In addition, since he wasn’t looking for any particular outcome, I wanted to give him a final chance to back out of sharing his ideas with me at this point.
He concluded – rationally – that we should stop talking. I felt better, and – while he didn’t get the benefit of my feedback – I don’t think he missed out on much since I expect it would have been an early / preliminary conversation anyway. While he could have kept pushing me to listen, he knew what he wanted to accomplish (expose me to the idea and get feedback) and – since he had this in mind – realized that the benefit to him was likely lower than the potential cost if the companies were in fact competitive.
As a result, we had a pleasant 10 minute phone call, rather than a 60 minute phone call that – in the best case – would have likely been irrelevant for him.
Brad Spirrison has a nice article in the Chicago Sun-Times titled Feedburner’s investors have its technology at their fingertips. Among other things, he highlights that three of the FeedBurner investors – me, Fred Wilson at Union Square Ventures, and Matt McCall at Portage Ventures are active bloggers that use FeedBurner’s services regularly.
While the notion of your investors using your product is a tricky one for some companies (say an ERP software company or an optical switch company) , it should be a no brainer for a consumer or Internet company. I just did a quick check and I’m an active user of all but two of the companies I sit on boards of. I’m also a user of many of the other Mobius companies products – even when I potentially have other choices – so that I can provide deep and regular product feedback. While my role isn’t “product manager” or “beta tester”, I can provide much more comprehensive feedback, better understand the product cycle, really have a perspective on competitive products (since presumably I can use them also), and provide insight into other things that I’m seeing that directly relate to the company’s products. Plus – it’s a lot of fun for my inner nerd.
If you have a product that normal humans can use, ask your investor (or potential investor) if they’ve used your product, how they use it, and how frequently they use it the next time you talk to them. At the minimum, the answer will help you frame their level of understanding of what you are creating.
I woke up to three good posts on the 80–19–1 Rule.
I expect that many of you are familiar with the Pareto principle (also known as the 80–20 rule.) If you aren’t, the simple definition is that for many phenomena 80% of the consequences come from 20% of the causes. Or – more practically – 80% of your company’s revenue comes from 20% of your customers, or 80% of your problems come from 20% of your customers, or 80% of your employee problems come from 20% of your employees. While it’s overused, it’s a good rule of thumb.
I was in a meeting the other day where we were talking about the concept I described in my post “The First 25,000 Users Are Irrelevant” that built off of Josh Kopelman’s superb post titled “53,651” (which appears to need to be updated to 100K due to the ever increasing readership of TechCrunch.) We were deep into a discussion about user generated content and how communities tended to grow. I’ve had plenty of experience observing this at Judy’s Book, working with several new content companies that I’ve invested in, and closely following the discussion that made the rounds about the 1% rule as it applies to Digg (e.g. 1% of the Digg users generate most of the Digg’s – resulting in Jason Calacanis offering to pay these 1% of Digg users to bookmark for Netscape.)
I get the 80–20 rule. I get the 1% Rule. But what about those other 19%?
It dawned on me that the gold is in the other 19%. Maybe this is obvious, but here’s how I’m thinking about it. Assume a web site content business (or social network, or bookmarking service, or something else along those lines) that incorporates user generated content (or user interaction) as a core part of it. Apply the 1% Rule. You’ve got your active users – these are the folks that are going to create content “just because.” In some communities I’m part of that 1% and – when I think about why I participate as actively as I do – I always have some non-standard rationale or motivation (or – more abstractly – the behavior and motivation of the 1% doesn’t scale to the rest of the community.)
Now apply the 80–20 rule. 80% of the users are the site are simply going to be fly bys. They won’t engage deeply – they are merely skimming / scanning content. It’s nice to have them, but they are the consumers, not the contributors.
That leaves 19%. This is the golden segment. If you can figure out how to engage these folks, you win. If you don’t, you’ll have a site driven merely by the 1%, which ultimately won’t scale. While theoretically the law of large numbers should apply (e.g. as N (= number of users) gets big enough, life is good), I hypothesize that if you don’t figure out how to engage this 19%, you won’t drive growth in N that will get you big enough to have the law of large numbers effect deliver you to happiness. There’s a virtuous cycle here – the 1% disproportionately seeds the activity of the site, the 80% consume content, and the 19% sit on the fence. If you can get the 19% to engage, this drives more vibrant content, which increases reach, which increases N, which means the activity driven by the 1% and 19% increases, which drives more content, etc.
Now – the 19% don’t have to contribute as much as the 1% (in fact, if you believe in the power law or are a long tail disciple – the sum of the contribution of the 19% probably equals the sum of the contribution of the 1%.) In addition, the critical mass associated with the 19% gets you to a true 80/20 rule (vs. a 99/1 rule) – which – if you buy into the Pareto principle – has very powerful (positive) implications.