We have a lot of hardware companies in our portfolio so I’ve been living in the world of “what to do about tariffs” for several quarters. My fantasy at the beginning was “ignore and hope they go away.” This quickly evolved through “are there any ways around this” to land at “deal with the reality of increased cost, research, and compliance.”

Fun.

It also became apparent, almost right away, that startups had a huge disadvantage over larger companies that had significant U.S. lobbying activities. We explored a few paths to engaging with the U.S. government around this and basically were told some version of “go away – you are too small and unimportant.”

Awesome.

Once I accepted the reality that the startups were going to have to pay the tariffs directly, that they had little control on what the tariffs would be, how and when they would change, and whether or not they’d get exemptions, I started operating under the assumption that 100% of the cost associated with the tariff would fall on the startup.

So, I started observing what other companies, especially large ones, were doing beyond the lobbying efforts of BigCo that resulted in exemptions. Would they absorb the tariff as an increase in COGS? Would they increase prices? Would they pass on the tariff to the customer?

A little more research showed what is pretty obvious in hindsight. Many BigCos are simply treating the tariff like a tax and passing it on, either directly or indirectly, to the consumer. This is similar to what is happening with state taxes, as states come up with lots of new taxes for out of state vendors, both physical and digital.

This shows up a few ways. While some companies are increasing the cost of their product to include the tariff (or even a markup on the tariff), many companies are trying to hold their price the same while passing the tariff on through other approaches.

Some companies are adding a line to their invoice called “Tariffs” and charging that to customers (I’m seeing this mostly in B2B situations). This looks like:

Product Price: $X
Shipping: $Y
Tariffs: $Z
Taxes: $T
——————–
Total: X + Y+ Z + T

Others are including Tariffs in the Shipping line.

Product Price: $X
Shipping and Tariffs: $Y + $Z
Taxes: $T
——————–
Total: X + Y + Z + T

But the one I’m seeing the most is simply including Tariffs in the “Taxes” line, where Tariffs are considered a tax.

Product Price: $X
Shipping: $Y
Taxes: $T + $Z
——————–
Total: X + Y+ Z + T

While some BigCos appear to be eating the cost of the tariff, this seems to be the exception. Startups should pay attention, and act accordingly.

If you are a hardware startup and have either seen, or figured out, a different approach, I’d love to hear about it.

Alex has been the Managing Director of Techstars NY for a number of years and I think he’s now run seven programs and built an impressive portfolio of around 80 companies.

I’m a huge Alex fan and love his writing. Recently, he put together a bunch of great blog posts on his site under a heading Startup Hacks. He has divided them into the following topics: Fundraising, Managing Investors, VC and Business Intros, Metrics and KPIs, Product and Marketing, Productivity, Founding Team, and Accelerator.

I’ve read them all. Some of my favorites include:

• 30 Questions Investors Will Ask Founders
• 11 Questions Founders Need to Ask Investors
• Why NO is the Next Best Thing After YES
• Founders, Beware of Happy Ears
• 25 Epic, Must-Read Posts About Fundraising
• How to Run a Simple and Effective Board Meeting
• How to Ask Me and Others for an Introduction
• Don’t Take Intros from Investors Who aren’t Investing
• Why Product Demo is Your Secret Weapon
• Inbox 0
• 7 Calendar Tips for Startups
• Why Founder-Market-Fit is so Important
• 8 Tips for Dealing with Competitors
• How to Get the Most out of an Accelerator

Alex – thanks for taking the time to write all of these! And, if you are a regular reader of this blog, I encourage you to go read all of Alex’s posts.

They are both worth reading right now. I’ll be here when you get back.

Between the spring of 2000 and the end of 2001, I had the worst, most stressful, and most painful business period of my life. While I’m sure the financial crisis of 2008 was worse for many people, for me it paled in comparison to the misery of this 21-month stretch.

A very simple thing happened that year in my world. The market shifted from rewarding (and funding) growth to rewarding (and funding) profitability. It happened over a few quarters, but with the perspective of time and age, it feels like it happened overnight. I remember the trigger point being a 3/20/2000 article in Barron’s titled Burning Up: Warning: Internet companies are running out of cash — fast. I was on the board of several companies on their list of 100 public companies that would be out of money by the end of 2000 and remember that my reaction to the article was anger, frustration with being maligned, and incredulity that Barron’s would write such an irresponsible article.

My reaction was stupid and immature. Instead, I should have paid attention to the message, thought about it, and taken appropriate action. Instead, I, like many of my colleagues (investors, board members, founders, and CEOs), operated in a state of blissful denial until everything blew up.

I learned that the markets reward growth until they don’t. Then they reward profitability. The trick is to be in a position to make the switch when you need to. Lots of CEOs and boards fantasize about this, but don’t actually have a plan in place to do this as they expect the future – where the switch from growth to profitability – will never come. Or, they hope the exit will happen before this moment.

I was too inexperienced in 2000 to understand this. Given the exuberance, many of my mentors, who had been through other financial cycles, chose to ignore this. The phrase “it’s different this time” echoed broadly throughout the land. I succumbed to the siren song of growth at any cost and paid the price – both literally and figuratively.

Now, I have zero prediction for when the markets will shift from rewarding growth to profitability. Instead, I operate under the assumption that this can happen at any time, and the best companies can grow quickly and either be profitable or be able to become profitable by making manageable modifications to the cost structure within whatever cash constraints they currently have.

Some version of this was on my mind when I wrote the post titled The Rule of 40% For a Healthy SaaS Company in 2015 and the post titled Is 2017 The Year Of Flat Headcount? earlier this year. While I think about this regularly, Mark and Fred’s posts prompted me to pile on to their point and write about it.

There’s a special bonus in Mark’s post, which is in the section titled Revenue is Not Revenue is Not Revenue. He does a nice job of discussing the importance of understanding gross margin and has a line that made me smile.

If you’re shaking your head and thinking, “duh” I promise you that even some of the most sophisticated people I know get off track on this issue of “gross revenue” versus “net revenue.”

I’d add that this includes getting confused about GMV and MRR when talking about revenue and amazingly occasionally confusing revenue with income. It keeps going, when one asks the question “does profitability mean being EBITDA positive, cash flow positive, or net income positive? Or something else?”

If you are a CEO of a company and any of this makes you nervous in any way, I encourage you to grab a few of your investors who have been investing in startups for at least 20 years, take them out to lunch, and talk through these issues with them to understand them better and figure out whether or not to care about this in the context of your company.

While Agent Smith was wrong, I don’t think I am. When the phrase “Startup Communities” started to become mainstream around 2012, I made the strong assertion that you could create a startup community in any city with at least 100,000 people. I used Boulder as a canonical example of it in my book Startup Communities: Building an Entrepreneurial Ecosystem in Your City and have been beating the drum about startups everywhere ever since.

While the meme that the only place to build a company is in Silicon Valley has softened, there’s still a strong belief that the best place to be if you are a first time entrepreneur is Silicon Valley. My argument is, and has never been, against Silicon Valley, but rather for the rest of the planet.

I saw three articles yesterday that reinforced the inevitability of startups everywhere.

• Millennial Innovators Are About to Leave Big Cities
• Here’s how small-town America is primed to beat Silicon Valley in innovation
• The Bright, Sustainable Future of Chicago’s Technology Ecosystem

When I reflect on where some of our investments are, they are in cities like Portland, Seattle, Los Angeles, Santa Barbara, Minneapolis, Boulder, Denver, Charlotte, Lexington, New York, and Boston. And then there’s Techstars which is now all over the world.

Sure – we have plenty of investments in Silicon Valley, or whatever you want to call it. I’ve asserted for a long time that Silicon Valley is a collection of startup communities, which includes San Francisco, Marin (the first board I was on – in 1994 – was for a company in San Rafael), Oakland, Redwood *, Palo Alto, Mountain View, Menlo Park, and Sunnyvale. Or you can just call it San Francisco, Oakland, and the Peninsula. Or maybe toss SOMA in. Or, well, does it really matter?

As a bonus, I’ve been hearing Amazon referred to regularly by mainstream media (and some people in the tech world) as a Silicon Valley company. Having invested in and spent a lot of time in Seattle over the last 30 years, I smirk whenever I hear this. I love seeing articles like How Amazon innovates in ways that Google and Apple can’t which should prompt entrepreneurs to Think Different (sorry, I couldn’t help myself).

https://www.youtube.com/watch?v=nmwXdGm89Tk

As a bonus, I leave you with Amazon’s patent for a flying warehouse.

While Silicon Valley is an amazing thing, if you are in the rest of the world, you are in a special and interesting place. Don’t lose sight of that.

I took the weekend off, spent time with friends, had an awesome Valentine’s dinner with Amy, and read Barry Eisler’s newest book The God’s Eye View (excellent – five stars – I love everything Barry Eisler.)

While going through my daily reading this morning, I came across a bunch of posts talking about how the sky was falling, Silicon Valley was in turmoil, financing was drying up everywhere, and all the unicorns were doomed.

Whatever.

In the midst of all the very predictable noise, much of it not really saying anything particularly insightful, were three posts by friends that I thought were extremely useful and very relevant. I encourage you to read each of them slowly and think about both what the writer is saying and what it means for you and your company.

Let’s start with Mark Solon’s Some Gray Haired Insights For New Investors. Buried deep within in a nice reminder of one of my fundamental beliefs.

“I remember a series of conversations I had with Brad Feld in 2008 about his perspective on investing through various parts of economic cycles. Brad was (and is) resolute in his belief that creating outsized returns in the venture industry demands ignoring the macro environment as it relates to investment pace.”

Mark says plenty of other things, along with walking us through some dynamics in 2008 around the macro, startups, and the global thermonuclear financial freakout that was occurring.

Ok – let’s move on to Mark Suster’s What Most People Don’t Understand About How Startup Companies are Valued. Mark also has a nice call out to me that helps explain why he writes posts list this one.

“When I started blogging it was because I was inspired by Brad Feld. When I was an entrepreneur there was no public information about how term sheets worked or how investors thought. Brad was openly writing about this and it felt like he was giving the VC playbook away for free! I always wanted to work with Brad for this reason so I started blogging because I figured if transparency worked for Brad I would try the same approach. Nearly EVERY smart VC I know has been talking privately for the past two years about how ridiculous valuations in private markets have gotten and how a reckoning was coming. Most prefer not to say this publicly for two reasons: 1) they have an entire portfolio of startups, many of whom are raising capital and 2) they prefer not to be attacked publicly or seem “anti entrepreneur.” But I promise you they’ve been saying it privately. So my talking up over the years is more trying to shine transparency on what we’re already saying in private rooms.”

Mark is on a monstrously awesome blogging roll right now. This post, along with the last N that he has written, have been outstanding. While I don’t agree with everything Mark says, it’s super important context for what is going on.

And then Alex Iskold, who runs Techstars New York, reminds us why this is a particularly good time to create a startup.

When you are done reading those three posts (and – if you haven’t – go read them – seriously – it’s worth the time) you should sit quietly for five minutes. Take a very deep breath. Figure out what you can actually impact today, and then go do it. And shut out all the rest of the noise.

It was excellent and is now on my “all startup CEOs must read” list. My recommended book list for startup CEOs is very long, but there are only three books on the must read list.

1. Startup CEO: A Field Guide to Scaling Up Your Business by Matt Blumberg
2. The Hard Thing About Hard Things: Building a Business When There Are No Easy Answers by Ben Horowitz

and now #3: Hot Seat: The Startup CEO Guidebook by Dan Shapiro.

All three are from experienced CEOs. Each is a delightful mix of stories, advice, and experiences. They are all contemporary, highly relevant, and fun to read. Regardless of the number of times you’ve been a startup CEO, from having started ten companies to being an aspiring CEO/founder, you will learn a lot from each of them.

I don’t think I’ve ever physically been in the same place as Ben, but we’ve exchanged emails in the past and he was willing to allow me to republish his classic essay The Struggle in the book I wrote with my wife Amy – Startup Life: Surviving and Thriving in a Relationship with an Entrepreneur. In contrast, I’ve known and worked with Matt since 2001 when I first invested in his company Return Path (well – it’s a little more complicated than just an investment – see my post Return Path Launches Email Intelligence from 2012 where I recounted some of the story.)

Return Path is an extraordinary company that I’m proud to have been involved with for the past 12 years. At our board meeting last week, Matt gave me and Fred Wilson our 12 year anniversary gift – a pair of red Return Path-branded Adidas sneakers. I still vividly remember the phone call Fred and I had where we cut a deal to merge two nascent companies – Veripost and Return Path – in what became Return Path. We cut a deal in 10 minutes – I offered up a 50/50 merger and Fred suggested he wanted a little more since Return Path had raised 3x the money Veripost had. I responded with “how about 55/45″ and Fred said “it’s a deal.”

Matt has become one of my best friends and I treasure every minute I get to spend with him.

Dan is a new friend. The first email I remember getting from him was from 9/3/13, titled My new project: Robot Turtles, and he acknowledges in Hot Seat that it’s the one time he spammed everyone in his address book. I don’t know why I was in his address book, so I asked Dan, and he dug up his very first email to me, which happened to be about the term sheet series that my partner Jason Mendelson and I wrote that lead to our book Venture Deals.

The first substantive email exchange we had was on 3/18/15, as a result of an intro from Ben Huh, the CEO of Cheezburger and another long time friend. We went back and forth on a rapid fire thread about Dan’s newest company Glowforge and the round he was starting to raise. We agreed to terms on a financing on 4/20/15 and closed a $9m financing with True Ventures on 5/8/15, at which point Amy and I went to Paris to celebrate (actually, we just went on vacation for one of our quarterly off the grid vacations.) There were a number of articles around the financing, but the best – and most thorough explanation of the company – was in Natasha Lomas‘s Techcrunch article Seattle’s Glowforge Is Building A Maker Machine To Challenge Amazon Prime.

Suffice it to say that in 75 days, I’ve gotten a good dose of Dan and am having an absolute blast working with him. He’s definitely got a healthy dose of evil genius combined with deep wisdom from being around the startup block a number of times. He’s tireless, intense, but delightfully funny and witty. He’s got extremely broad range as a CEO and entrepreneur, which comes through in his daily activities as well as his writing.

Which brings me back to Hot Seat. Like Matt and Ben’s books, it’s very fast paced. The chapters are short, written in first person, and easy to read. He’s not shy about calling things out clearly, including his own crazy experiences, especially the things he totally fucked up or had no idea about when he first encountered them. His examples are great, including some from mutual friends including Rand Fishkin and Ben Huh. The book is well organized and easy to dip in and out of. He flogs Venture Deals: Be Smarter Than Your Lawyer and Venture Capitalist, which I put in the flattering special bonus category. And – he’s got great footnotes in each chapter which give you a special dose of his sense of humor.

I hope to get to work with Dan for a long time on Glowforge. But, regardless, I know I’ll be regularly recommending Hot Seat: The Startup CEO Guidebook to every CEO I know.

Much progress has been made to ensure that those in Washington are hearing entrepreneurs’ concerns, but we still have a long way to go – especially with connecting politicians to those in the seed-stage technology sector. Politicians in our federal government are listening to entrepreneurs, but we very rarely see congressmen personally sit across the table from early-stage tech investors and their founders. When this does occur, however, representatives learn much more about what startups really want and need than they would hearing feedback through second or third parties, and they’re much more likely to take supportive action.

That is why the Global Accelerator Network is thrilled to support the first ever Startup Day Across America on August 29. This one-day bipartisan event, led by the U.S. House of Representatives Caucus on Innovation and Entrepreneurship, will connect members of Congress with startups and accelerators in their respective districts. We believe this is a great opportunity for startup communities to connect with their congressional representatives – both to highlight the positive contributions startups bring to their communities, as well as raise awareness about startups’ needs on a local and national level.

If you are interested in learning more about the Startup Day Across America, please contact Eve Lieberman in Congressman Jared Polis’ office who will connect you with the person leading the charge in your district.

As Boulder continues to gain visibility as a great place to create companies, I’ve decided to highlight some of the entrepreneurs – and their companies – who have contributed to Boulder in significant ways.

Dan Caruso, the co-founder/CEO of Zayo Group, is one of them. I first met Dan around a decade ago when Howard Diamond, another incredible contributor to the Boulder startup community, introduced us. Howard was at Level 3 at the time – they had acquired his previous company Corporate Software (which I was an investor in) – and he knew Dan through that experience. Over the last decade, I’ve gotten to know Dan, watched as he’s built an incredible $6 billion market cap company headquartered in Boulder, while contributing relentlessly to the Boulder startup community.

I asked Dan to write a guest post talking about Zayo’s story. It’s great – and follows. Dan – we are lucky to have you – and Zayo – in Boulder.

“Fiber in Downtown Boulder?” was the title of an email sent to me by Brad, after he had heard from one of his CEOs that Zayo is constructing fiber in Boulder. “If true, how can I help?”, he continued.

Years ago, when I first met Brad, I didn’t “get” him. I had recently left Level 3 Communications. I was one of the day one execs of LVLT, as well as an early member of the management team of MFS Communications. It is understandable that I considered myself to an accomplished entrepreneurial-minded executive. Yet I felt so disconnected to Brad and the culture around him. It took me several more years to understand Brad, and during this time I developed a deep appreciation of his passion for entrepreneurism. I was drawn to his unique ability to promote ideas, create awareness, and fuel momentum. I sought to mimic his propensity to leverage social media.

“How can Brad help?”, I pondered.

“Help me create more awareness about the contributions that Zayo is making toward the Front Range entrepreneurial community.

Brad, entrepreneurial as ever, delegated the task back to me. “How about you write a post for my blog?”

Sensing an opportunity, I responded “How about I write two?” This is the first. The next one will describe our extensive fiber build across the front range.

I will provide a quick synopsis for those who prefer a two-paragraph summary. In late 2006, Zayo was a pure start-up headquartered behind Nick and Willy’s on 8th and Pearl. Today, Zayo has eclipsed $1.1Bin revenue and $600M in EBITDA, leading to an estimated Enterprise Value in the vicinity of $6B. We have 3 offices in Colorado, with our headquarters on the 2nd floor of 29th Street mall. In addition to directly employing 250 people across the Front Range, we indirectly employ many more related to our multi-million dollar fiber build across the front range. Dozens of recent graduates of Colorado’s university system are Zayo-ites.

Boulder is an incredible entrepreneurial community, and I enjoy being immersed in it. I am excited to see this innovative energy spreading across the front range, through Startup Colorado and other initiatives. I am proud that Zayo is a vibrant example of our community’s robust start up ecosystem.

For those who prefer a slightly longer version, here is the Zayo Story in a nut shell.

In June of 2006, we sold what remained of ICG Communications to Level 3. The ICG team went to Level 3 as part of the transaction. I didn’t.

Two years prior, ICG was a public company preparing for its second bankruptcy. My group was the only that offered an alternative to Chapter 7/11. We paid them $8.7M and took them private. By the time we sold to Level 3, our total proceeds to equity owners and management were $225M. For those without a calculator nearby, that’s a 25X return in 2 years.

Nonetheless, I was out of a job.

Though ICG was headquartered in south Denver, we opened up a small satellite office on 8th and Pearl — right behind Nick and Willy’s. In the sale to LVLT, we kept a portion of this office. One by one, many of my colleagues extracted themselves from Level 3 and pondered “what now”. By late 2006, we formed Communications Infrastructure Investments. Today, CII d/b/a Zayo Group.

Our investment thesis was simple. Bandwidth was busting — and this would continue beyond our children’s lifetimes. Fiber was the workhorse of the Internet — and nothing would alter its importance for as far as the eye could see. Most importantly, drinking too much tequila leads to a hangover that makes it hard to look at — let alone taste — tequila again.

Point 3 requires more of an explanation. The late 1990s saw a fiber tequila party that started out wild — investors poured money into start-ups and fiber networks were constructed throughout the land. Way too much fiber tequila was gulped, and the ensuing telecom meltdown caused a hangover of epic proportion. As we hit the early 2000s, investors and strategics felt their stomach’s gargle at the sight of a fiber-labeled tequila bottle. You know that feeling?

Our ICG experience gave us different perspectives. First, many fiber networks had consolidated into a handful of platform. The balance between supply and demand of bandwidth was rapidly improving.

Second, we saw an opportunity to be a consolidator of the remaining fiber properties. We called these fiber orphans — companies whose roots dated to the telecom boom but which had not yet been consolidated into a nationwide platform. These companies somehow navigated their way through the meltdown. By 2007, they were doing quite well. However, the tequila hangover persisted and few investors or strategics were paying attention to them.

Third, we developed a thesis around “Bandwidth Infrastructure”, a term we coined. We did not desire to be a traditional telecom company. Instead, we sought to provide raw fiber, wavelengths, ethernet, IP, and technical space to those entities that needed a whole lot of bandwidth. Circa 2007, this was considered a ridiculous approach. Even today, we are sometimes poked by rivals for our infrastructure approach.

Between 2007 and 2013, we acquired 25 companies. We now have over 80,000 route miles of fiber, mostly in the U.S. and London. Our fiber is connected to nearly every significant colocation, hosting, and carrier hotel facility. Our biggest customers are the wireless carriers and big content/Internet companies. We raised $2.7B of debt and $870M in equity in three rounds. Our initial investors have not sold, though they are enjoying a 4 – 5X mark. Our equity IRR has averaged around 50% since inception.

Zayo is in this for the long term… the very long term. My aspiration is to be at the helm of Zayo for a few more decades. Zayo will be to bandwidth what Amazon is to the cloud and what Equinix is to colo. Zayo will foster the development of additional start-ups, either within Zayo or as spawning-offs. The bandwidth supplied by Zayo will positively effect the lives and livelihood of countless people throughout the world. As Zayo continues its quest, it will bolster Boulder and the Front Range’s reputation as a top tier centers for Entrepreneurship and Innovation.

This post was an internal email to the Pantheon team following a major feature release (Multidev).  When I saw it, I asked Zack if I could post it on my blog as an ode to all startups. Many of you are out on the frontier, and I thought Zack captured the essence of it in his message to his team. 

From: Zachary Rosen
To: Pantheon Staff
Date: Thursday, July 18, 2013 2:19:42 AM
Subject: Welcome to The Frontier

The Frontier Thesis was a theory advanced by historian Frederick Jackson Turner in 1893 that American democracy was formed by the American Frontier.

“American democracy was born of no theorist’s dream; it was not carried in the Sarah Constant to Virginia, nor in the Mayflower to Plymouth. It came out of the American forest, and it gained new strength each time it touched a new frontier.”

You may have noticed me acting slightly more neurotic or animated lately. There is a reason for that. Apologies if I am bugging you out—it’s going to get worse.

I am very, very excited to be back here, on The Frontier.

I’ve been here before.

When I was was in college, I found some books written on the future social impact of the Internet on the World. I was a poor student, so I added them to my Amazon wish list as auctions.

Then one day I messed up, clicked the wrong button, and ordered hundreds of dollars worth of non-refundable, esoteric, nerdy used books…and over-drew my bank account. I remember thinking when they arrived, “Well, I guess I may as well read all of these stupid books that bankrupted me.”

I’m very glad I did.

That summer, this bumpkin/badass former governor from Vermont running for president (Howard Dean) had found this guy Joe Trippi to run his presidential campaign. It became clear to me that Joe had read the same books I had, and that he intended to see if the shit in the books actually worked.

I had to be there. The summer of 2003, I started an open-source (Drupal-based) project for the campaign (Deanspace), got a job in the campaign HQ in Burlington, VT, dropped out of school, and had about the most profound professional experience one could at age 19 in 2003.

I spent a year on the Dean campaign Web Team during the presidential campaign of 2004. We lost the campaign badly, but we won a major battle on The Frontier of Global Politics in the age of the Internet.

The Dean campaign Web Team proved a very simple but important idea to the world that year. We proved that you could challenge the political establishment and beat them at their own game (fundraising) by appealing directly to supporters via the Internet. That idea—which our team made work—has changed the world.

Barack Obama would not be president today without the path the Dean web team blazed. Knowing this has permanently altered the way I view my work.

Friends from the campaign went on to run Obama’s Internet operation. You’d have a hard time making the case that Obama could have won without their help.

That experience set the bar for me in my career. Ever since then, if my work is not on that scale, then I feel like I am wasting my time on this planet.

I’m at home back here on The Frontier.

What it’s like on The Frontier

For me, launching Multidev put Pantheon clearly on The Frontier. We’re doing new shit the world has never seen before.

Here are a few of my thoughts about our time here:

1. You know that quote from Margaret Mead? “Never doubt that a small group of thoughtful, committed citizens can change the world. Indeed, it is the only thing that ever has.” The Dean campaign Web Team was 20 people, about the same size as Pantheon is today. Small teams can do huge things.

Accomplishing huge things is not easy. On The Frontier, there’s no rule of law and there are no guarantees. There are consequences if we get it wrong. We won’t be destitute, but we’ll always wonder if we could have done better.

On The Frontier, we know this, and we still go after the big problems, six-shooters blazing.

2. There are not very many people out here on The Frontier. It can be strangely quiet and peaceful. Everyone has so many opinions when you make your journey out! “Well, what will you do when X happens?” “That won’t work.” “I don’t get it.” Or, my favorite, “I’d do it this way.”

But when you get out here, you get to see what will really work and what won’t. You survive by your wits. You learn to listen to and trust your gut.

How many other people are out here working as hard as we are to fundamentally fix website tech? …. *crickets*

3. What we are doing will look obvious in retrospect. “Duh, you can raise a ton of money for a presidential campaign online” is now common knowledge, but in 2003, we were looney. “Duh, websites are developed, launched, and run in the cloud” will be common knowledge soon enough.

The biggest ideas are usually the simple ones. They seem so confusing and hopeless before, somehow, all of a sudden, they are taken for granted.

Before any big city, there was once The Frontier.

4. We are blazing the path for everyone else. We are the leaders in our market, and they will follow, after we’ve found and laid the path. The entire world will follow us after we’ve found out how to make building, launching, and running websites easy.

Notice the other paths laid by other teams out here on The Frontier. This work is holy. When you pass another team blazing their path, tip your hat. This shit isn’t easy. Be gracious on The Frontier.

5. This is a special experience. We’re not saving the world directly. We aren’t surgeons in the O.R., or soldiers in harm’s way. We’re engineers laying down foundational tech that others will build on top of. Most will never see our work. But, through our work, we have the opportunity to shape what’s possible in the world around us.

With Multidev we set a bar for the software industry on what is possible when custom software is built, launched, and run in the cloud. The other leaders in our space are behind us. We are the ones who have built a cloud platform with such deep (full website stack) and broad (dev -> deploy -> scale lifecycle) capabilities, so we get to be the ones who discover what is possible.

You will remember this work, your time on The Frontier, for the rest of your life.

Recently, the SEC weighed in on a number of the things they were required to with much fanfare. Fred Wilson wrote Let The Games Begin in response to the SEC lifting the General Solicitation Ban. However, Fred, and many others, missed the new proposed Amendments to Regulation D, Form D and Rule 156 under the Securities Act. And they look like one scary mess that could undermine the whole thing if approved.

Some posts with analysis of this have finally started to appear. A good summary is by Joe Wallin at his Startup Law Blog titled Proposed Rules Hard on Startups. And I’ve gotten a number of emails with similar analysis. My favorite summary was from a very experienced law firm.

“The SEC giveth (as mandated by Congress) and taketh away (by its own mandate).

It is incredible that the SEC finally got around to implementing rules to remove the ban on solicitation (as it was required by statute to do so in 2012), but concurrently proposes new rules intended to retard the benefits of easing the capital formation process (the goal of the JOBS Act).

The new proposed rules will require a Form D to be filed 15 days in ADVANCE of a Reg 506 offering and after, substantially expand the scope of information required to be disclosed in Form D and disqualify an issuer from relying on Rule 506 for one year if the issuer does not comply with the new filing requirements (including a requirement that the Form D be timely filed). The new rule also would require filing with the SEC of all written general solicitation materials. So much for deregulation!”

Seriously? More commentary from one of the emails I received follows:

“The new rules and rule proposals were a kind of packaged effort to address the Congressional mandate in the JOBS Act, while attempting to maintain investor protection. Apparently, the package was enough to mollify Commissioner Walter, but Commissioner Aguilar was unwilling to go along. In his view, the rules adopted come at the expense of investor protection. He reiterated that the record supports the argument that elimination of the ban on general solicitation will facilitate fraud and viewed the adoption of the rules without appropriate safeguards as “reckless.” He also contended that the proposal to study the practical effects and then adopt rules if necessary would come too late – closing the barn door after the horses have already escaped. Although he voted for adoption of the disqualification rule, he also objected to the narrowing of the categories of individuals covered, as well as the application to only prospective events, especially given the two-year delay in adoption of the final rule. On the other side of the aisle, Commissioners Paredes and Gallagher both objected to the proposal to facilitate monitoring of market changes resulting from elimination of the prohibition. They both viewed the proposal as placing an undue burden on capital formation and undermining the objectives of the JOBS Act.”

While the “proposed rules” are still “proposed”, hopefully the SEC will reject these new proposals, especially in the context of Congress’s mandate to Jumpstart Our Business Startups.

As a result of this obsession, I’m launching Startup Revolution, starting now.

I view Startup Revolution as a movement. Since my partners and I started Foundry Group in 2007 we’ve had an incredible experience working with a hundreds of entrepreneurs across the US in the 50 or so companies we’ve directly funded. We co-founded TechStars and have gotten to work with thousands of amazing entrepreneurs and mentors, many of whom are also incredible entrepreneurs. We’ve written a few books, including Do More Faster and Venture Deals and met many more entrepreneurs through them. We’ve invested in other VC funds with our own money (and subsequently met even more entrepreneurs) and evangelized tirelessly about startups around the US, working with organizations like the Startup America Partnership.

Lots of community has developed around startups, what I’ve learned, and what I think at the Feld Thoughts site, but I want to create a community that is broader. My partners and I continually learn all kinds of things about startups. We learn by doing – through our investing at Foundry Group. But we also learn by teaching – through writing (books and blogs), talking to entrepreneurs continually about what we are thinking, and evangelizing the power of startups and entrepreneurship as widely as we can. And all of this makes us better investors.

The Startup Revolution movement is another step in this. Like any new thing, I’m launching early and iterating often. The next few moves are the Startup Revolution site (and subsites for each book – Startup Communities, Startup Life, Startup Boards, and Startup Metrics). Leave anything you want me to add, change, or think about in the comments.

Finally, pre-orders for Startup Communities: Building an Entrepreneurial Ecosystem in Your City and Startup Life: Surviving and Thriving in a Relationship with an Entrepreneur are now up on Amazon.

The Startup Revolution is well underway. Don’t be left behind.

“I’ll never forget one of my early visits to Boulder. After a full day of meeting with startups, I was asked by the entrepreneurs I was with if I’d like to join them and some peers for a “special dinner.” “Sure,” I replied. “What’s special about it?” “It’s a wake” they deadpanned. That dinner showed me that the fabric of this small mountain town was different than anywhere else I’d been. Turns out that earlier that week, a local startup had decided to shut down and the “wake” was the startup community’s way of showing these young, fragile entrepreneurs that it was okay to fail – that the honor was in trying.  They made those founders feel good about themselves in a moment that was critical in their development as entrepreneurs. As an aside, in this case the founders didn’t run out of money. After giving it their best effort, they realized their business wasn’t going to be the great success they had envisioned and they decided to return their remaining cash to their investors. The epilogue of that dinner is that the founders had roles at other local startups within a few weeks.” 

I was thinking about this last night as I was emailing with an entrepreneur who’s company is struggling. Failure is a normal part of the entrepreneurial cycle and it’s talked about regularly. There are endless stories about the entrepreneur who failed and then created a monster success for his next company. But there’s not enough discussion about how startup communities should embrace failure.

I think this is especially important for first time entrepreneurs in a community. It’s easy to prognosticate about failure when you’ve been successful; it’s much harder to go through it. It’s even more painful when it’s your first time and everyone around you seems like they are doing great, even if they aren’t really but are just putting on a good act. So a natural instinct for an entrepreneur on a failing path is to turn inward, shut down, and withdraw.

If your peers in the startup community (the other entrepreneurs) don’t notice, it’s even worse. Failure sucks – it’s often emotional, physically, and financially painful. When your friends suddenly ignore you, avoid you, or don’t have time for you it just reinforces the pain.

Having a wake for a failed company can turn this around. If you are an entrepreneur and observe an entrepreneur in your community failing, do something about it. Organize a group of entrepreneurs to have a wake. Surprise the entrepreneur who is shutting down his company and take him out. It doesn’t have to be a debaucherous, alcohol laden evening (although it can be) – rather do something that you know the entrepreneur in question will enjoy and appreciate. A nice meal. A quiet conversation. A show of support from his peers. Encouragement. Acceptance that failure is part of the entrepreneurial process.

If you are an entrepreneur in a company that is failing, don’t be ashamed. Most startups fail. What matters is how you handle it and what happens next. Let your fellow entrepreneurs throw a wake for you, let the moment happen, and then get on with the next thing. Life is hopefully long. And, for all the entrepreneurs who are leaders of their startup community, make sure you do everything you can to make sure everyone knows failure is ok.

We incorporated a month later as an S-Corp. It cost us $99 to do this – I remember using an organization called The Company Corporation – we called an 800 number, gave them some information, and the documents were automatically generated and filed. A short letter agreement specifying the equity splits and the boilerplate legal docs were the only legal docs we had until we sold the company in 1993.

As my partner Jason Mendelson told me after I sent him this the other day, “If things go well, it’s fine. If they don’t, it’s a fucking disaster.”  And he’s completely correct – in this case things went well so there were no issues.

I continue to try to do deals this way. I lay out the terms, will negotiate a little, but am clear about what I want. If it works, great. If it doesn’t, I move on. Once the simple terms are agreed to, I let the lawyers generate hundreds of pages of documentation to support the deal. I used to read every word on every page myself (I learned that from Len Fassler, who bought Feld Technologies). I still look through the documents, but I only work with lawyers who I deeply trust to do it right (like Mike Platt at Cooley) so I focus on the stuff that matters for the specific deal.

Trust matters more than anything else to me in a deal. Sure, I occasionally get screwed in a deal, but never more than once by the same person. And, for people like Dave Jilk and my dad, I’ll work with them over and over and over again because I trust them with my life.

Keep it simple. It’s much better.

Over $8 billion dollars will be spent on the upcoming 2012 election. The web and social media are critical tools for any candidate. Every candidate will need our stuff and since over $8 billion dollars will be spent, even if we capture a tiny part of that market, we will create a huge company. Did I say that over $8 billion dollars will be spent? Would you like to hear more about the amazing opportunity we have in front of us?

The polite version of my answer has been “Thanks for reaching out but we aren’t interested in investing in the politics vertical market.” But, echoing in the back of my head is “$8 billion dollars? You’ve got to fucking be kidding me.”

I could go on about a rant about spending $8 billion to elect people in one election. But I realize there are lots of different ways to look at this, including the common refrains of “it’s a stimulus for our economy” and “but it’s entertainment, just like football.” And I have no doubt that there are people out there whose immediate response is “but don’t you think your ad-tech related companies make a lot of money off of this?” And as I cycle through the next ten thoughts in my head, I realize that my personal thoughts about this will have no impact on what actually happens.

So instead I just vote with my own wallet and get on board the Howard Schultz Boycott Campaign Donations train. And while I have no doubt that some people can make money creating web services for helping candidates get elected, especially those that include mobile, real-time data, and geo-location, I have no real interest in investing in companies that have the singular goal of helping politicians get elected.

It was with this backdrop that I read The Lean Startup by Eric Ries over the weekend. If you don’t know Eric, he’s the pioneer of the Lean Startup Movement, building on the great work of one of his mentors, Steve Blank who wrote the seminal book The Four Steps to the Epiphany. Both Eric and Steve have must read blogs and Eric’s new book will join Steve’s as a critical book for any entrepreneur working on a tech startup.

The Lean Startup is focused on the early stages of a company, but apply throughout the lifecycle of any business as all product initiatives, especially new ones, benefit greatly from the Lean Startup approach. We spend a lot of time on this at TechStars and you see a lot of the lean startup principles reflected in the stories in Do More Faster: TechStars Lessons to Accelerate Entrepreneurship. While Eric’s book isn’t out until September, I encourage you to preorder it now and gobble it down when it gets to you.

I’ve been a fan of Eric’s for a number of years ever since I first started reading his blog. We’ve worked closely together on the Startup Visa Movement and I put him on my short list of people who I’d support in any endeavor that was important to him based on his attitude, vision, deep thinking, and great style and approach to things.

As the world becomes fascinated with exits, I’m going to keep focusing on startups because without them, nothing else matters in the entrepreneurial chain. As part of this, I’d like to put together a great bookshelf of “startup books” – books aimed at the startup phase of entrepreneurships.

If you’ve got any favorites, please mention them here and – if I haven’t read them – I’ll go grab them.

We are picking 64 companies to participate. To qualify, you must enter by March 9th and meet the following requirements.

• Haven’t raised funding of $250,000 or more and haven’t generated revenue of more than $250,000 in a single year.
• Have a live, usable public site or an accessible demo on their home page
• Have not already been in the TechStars program – this is not for TechStars companies or alumni companies
• Must be an internet, software, or hi-tech company

You can nominate a startup on the Startup Madness page or just tweet out the following (replace @ENTRANT with the twitter handle for the company.)

Hey @TechStars, I nominate @ENTRANT for the @StartupMadness Tournament https://tsta.rs/sumadness

And yes, there are awards – a lot of them. Over $25,000 worth. Again, go to the Startup Madness page to see them.

Bring March Madness – of a different kind – to nerdville.

I wouldn’t have thought of this except for I’m deep in the proofreading of a book that David Cohen and I are editing called “The Tao of TechStars.”  One of the essays in the “Working Efficiently” section is written by David, titled “Don’t Suck at Email”, and talks about this.

Specifically, David says:

“Another way that founders suck at email is by sending email from a Gmail, Yahoo, Hotmail or other generic account.  Every time you send an email like this you’re missing a branding opportunity for your company.  Send and receive email from your company domain so you don’t suck at email.”

Joe’s email to me should have been from joe@coolthing.com.  There are so many reasons this is better than joesmith@gmail.com, including the simple reason that the chance of me associating “Joe” with “CoolThing” in two weeks is much greater than the chance of me associating “Joe” with “Smith” and then with “Coolthing.”

Now, I know some of you out there will say, “but Feld, you use brad@feld.com instead of brad@foundrygroup.com for your email – what gives?”  Ah, the irony of some things in life (although brad@foundrygroup.com works just fine.)