Bill Burnham has today's best VC blog of the day titled 4 Things to Do After You Get Your First Term Sheet. As a special bonus, the second best VC blog of the day is Fred Wilson's post titled From Messes To Successes. Fred had a post in him titled "From Moths to Butterflies" but he liked the ring of the esses better.
We recently filed an SEC-mandated Form D for a new Ning investment round that we were not otherwise going to talk about -- but VentureBeat discovered the filing and so the news is out.
The specifics are:
We have raised about $60 million net in a private Series D equity round.
The pre-money valuation was $500 million, making the post-money valuation about $560 million.
Our friends at Allen & Company helped us orchestrate the round.
The new investors are large institutions who are not particularly looking for publicity.
We raised the money to enable us to keep scaling given our accelerating growth (over 230,000 networks on Ning now, growing at over 1,000 per day) and to make sure we have plenty of firepower to survive the oncoming nuclear winter. At current growth rates, we don't need it to get to cash flow positive, but having lived through the last crunch, it's good to be conservative with these things.
"My question is how do we value a company with no sales? I understand it's an arbitrary valuation but is there anything we can possibly base it on? Is there a "default" valuation for companies in a seed round?"
We'll answer this question with some questions (and answers) of our own:
First, figure out how much money you need to run at least two experiments*. Then tack on 3 more months of runway so you can raise another round before you run out of money. This is the minimum amount of money you should raise. For example, let's say you need $100K.
* Your experiments should be constructed such that a positive result will let you raise more money at a higher valuation.
2. How do we set a valuation from this budget?
Now decide what percentage of the company you will sell for $100K. Pick a number between 10% and 20% of the company's post-money. You can go below 10% but that probably means your valuation will be too high or you will raise too little money.
For example, let's say you're willing to sell up to 15% of the company—that's your bottom line dilution. This implies a bottom line post-money valuation of $666K.
3. How do we express our valuation to investors?
Finally, tell investors that,
"We think we can make the company significantly more valuable if we raise $100K—that's our target. And we're willing to sell up to 10% of the company to reach that target."
10% is your aspirational dilution. It's the lowest dilution you can justify. It's the lowest dilution you can say with a straight face.
Notice that you didn't explicitly state your valuation. Combining the dilution (10%) with the amount you're raising ($100K) implies a post-money valuation of $1M. But the valuation is not explicit. This gives you room to raise your valuation if you raise more than $100K (and we suggest you raise as much money as possible).
4. What's the range for seed round valuations?
If $25K buys 1% of company, your post-money is $2.5M—that's on the high end.
If $25K buys 5% of company, your post-money is $0.5M—that's on the low end.
5. How low do seed round valuations go?
Y Combinator has set new lows for seed round valuations. They get away with it because they also set new highs for helping seed stage companies.
According to the YC FAQ, they buy about 6% of a company for $15K-$20K. So the post-money valuation of their investments is $250K-$333K.
But don't fixate on valuation. Low valuations aren't bad if you keep the dilution down too. 6% dilution is very low if the company makes a lot of progress with $15K-$20K.
6. How much money can we raise in a seed round?
If you sell 20% of your company at a $2.5M post-money, you raise $500K. That's about the maximum for a seed round. Beyond that is Series A country.
7. How much dilution should we expect in a seed round?
Take as much money as you can while keeping dilution between 15-30% (10%-20% of the dilution goes to investors and 5%-10% goes to the option pool).
Compare this to a Series A which might have 30%-55% dilution. (20%-40% of the dilution goes to investors and 10%-15% goes to the option pool.)
A seed round can pay for itself if the quality of your investors and progress brings your eventual Series A dilution down from 55% to 30% (for the same amount of Series A cash).
Don't over-optimize your dilution. Raising money is often harder than you expect, especially for first-time entrepreneurs.
Smart investors don't over-optimize dilution either. They want to buy enough points to own a good chunk of the company. But they want to leave the founders with enough points to keep them highly motivated to build a lot of value for the founders and investors alike.
The joys and drawbacks of being able to work from anywhere
Illustration by Bell Mellor
THREE years ago Pip Coburn left his job as an analyst at UBS, a global bank, in order to start his own investment consultancy, Coburn Ventures. At his first staff meeting, in a Manhattan café, he and his five colleagues drew up their to-do list. The most urgent item, everybody agreed, was to get BlackBerries. Then they needed to start contacting clients. And at some point they should probably find some office space, ideally in the chic area around New York's Union Square.
Within three days they had their BlackBerries and were pitching their offerings to fund managers. That went well and kept everybody busy. All six were roaming around the city and country, working from wherever they pleased and meeting clients either virtually—via e-mail, phone or instant messaging—or physically wherever the clients preferred. "No client ever even asked me whether we had an office," says Mr Coburn, "so the office space never rose to the top of the agenda."
Eight months later, with seven employees now, Mr Coburn brought up the issue again, at another breakfast meeting in a café. He asked if anybody still wanted an office at all. One thirtysomething woman, with two kids and a nanny at home, felt that she might like a quiet office as an option. But the others—all in their 30s except for two fortysomethings, including Mr Coburn—were now against it. "We had learned to love the freedom and autonomy," says Mr Coburn. So Coburn Ventures remains a "virtual firm".
That changes the way its employees live. While at UBS, Mr Coburn got up at precisely 5.08am on weekdays in order to catch a commuter train into Manhattan that would allow him to be at his cubicle by 6.45 and in a conference room at 7.00. "I never saw my kids in the morning," he recalls. Now he wakes up at 6.15, does half an hour of yoga, kisses his three children and then turns on his BlackBerry. Usually he works at home or in cafés with Wi-Fi in his suburb of Westchester. When he goes into Manhattan, it is for specific meetings and at off-peak times. He also works from his second home in Maine and uses the five-hour drive for "wonderful, free conversations" on his earpiece.
Nomadism works, he says, because everybody on his team is "conscientious and self-motivated". But it did take some adjusting. At first the team's communications became more "transactional"—efficient but impersonal. Once a terse e-mail led to an awkward misunderstanding. And without the proverbial water cooler, there was "no space for casual serendipity", says Mr Coburn. But these drawbacks were easy to fix. His team now gets together regularly for fun, as if they were a clique of college friends. The group has become closer than any he has ever been part of, says Mr Coburn, and everybody has a "deeper connection to the organisation".
James Ware, a co-founder of the Work Design Collaborative, a small think-tank, says that nomadic work styles are fast becoming the norm for "knowledge workers". His research shows that in America such people spend less than a third of their working time in traditional corporate offices, about a third in their home offices and the remaining third working from "third places" such as cafés, public libraries or parks. And it is not only the young and digitally savvy. At 64, Mr Ware considers himself a nomad, and accesses the files on his home computer from wherever he happens to be.
Today's work nomadism descends from, but otherwise bears little resemblance to, the older model of "telecommuting", says Mr Ware. That earlier concept became popular in the 1990s thanks to cheap but stationary telecommunications technologies—the landline phone, the fax and dial-up internet. Because it still tied workers to a place—the home office—telecommuting implicitly had people "cocooning at home five days a week", he says. But people do not want that: instead, they want to mingle with others and to collaborate, though not necessarily under fluorescent lights in a cubicle farm an hour's drive from their homes. The crucial difference between telecommuting and nomadism, he says, is that nomadism combines the autonomy of telecommuting with the mobility that allows a gregarious and flexible work style.
This new model of nomadic work has become technologically feasible only very recently. Mike Lazaridis, the founder of Research In Motion and inventor of the BlackBerry, the firm's main product, says that his device "freed you from your desk" just when globalisation seemed to require many office workers to put in 24 hours, seven days a week. "The BlackBerry didn't cause globalisation, but it helps you manage the reality of it. We wanted you to have a life," he says.
Wi-Fi hotspots have been equally crucial, as have many relatively obscure innovations, such as IMAP, the "internet message access protocol". It synchronises e-mail across mobile phones, computers and web mail so that the user encounters the same in-box no matter which device he uses. PDF, the "portable-document format", became a universal standard for producing, sharing and archiving anything that used to require paper. "Cloud computing" increasingly lets people keep their documents online rather than on one particular computer.
Office politics
With the old technological hassles thus mostly conquered, the new questions tend to be sociological. Wes Boyd has worked nomadically for the entire decade since he co-founded MoveOn.org, a leftish organisation for political activism in America, and attributes his "great family life" to this style of work. But as MoveOn.org grew to about 20 staff, thousands of consultants and millions of volunteers, he also realised that "there can't be any clumps of people in physical offices" because they might turn into cliques or "power centres". In an effective organisation, "there mustn't be insiders and outsiders," he says. So he made it a rule that no two people anywhere may share a physical office.
Instead, all of his colleagues are "virtually co-present" throughout the day, says Mr Boyd, pointing to the instant-messaging "buddy list" on his computer screen, which shows who is available and who would rather not be disturbed. Instead of wasting time in pointless physical meetings, he gets most issues resolved with constant and quick electronic communications, arranged ad hoc rather than scheduled in advance. As a result his staff are more "purpose-driven" and less obsessed with relationships, which improves the quality of their work, he says.
Conflicts arise only when both models, the old culture and the new, collide or overlap, he says. This usually happens in Washington, DC, where Mr Boyd has a lot of business. In the government bureaucracies he visits, workers still have assistants who "structure their time" so that it can take a week to arrange a meeting to resolve a mundane detail. Yet these same workers are now also expected to do "ad-hoc flexible scheduling", which tears them apart. "In physical meetings, they are the ones looking at their BlackBerries under the table," says Mr Boyd.
Larger organisations often do not have the option of dispensing with offices entirely, as Coburn Ventures and MoveOn did. So they need to manage a mixed system of work cultures. At Sun Microsystems, a company that makes hardware and software for corporate datacentres, more than half of the workforce is now officially nomadic, as part of a programme called "open work" in which employees have no dedicated desk but work from any that is available (called "hotdesking"), or do not come into the office at all.
That has not, however, created the coteries that Mr Boyd fears. "It's naive to think that the physical infrastructure has anything to do with power," says Jonathan Schwartz, Sun's chief executive. His experience with nomadism is entirely positive. Sun's workers love the flexibility, stay with the firm longer and are more productive.
Mr Schwartz himself leads by example. He usually carries only his BlackBerry and works from "anywhere that has Wi-Fi". He has an assistant who manages his diary ("she recently put her foot down and has forbidden me to modify what she puts in") so that "150% of my time is structured." The difference is that he now rarely sees her, and that the venues for his scheduled meetings are flexible. He conducts many on Skype, a free internet-telephone service, or in person at cafés. "Time provides the structure, location takes care of itself," he says. He is now planning to get rid of his physical office entirely; Sun's top lawyer has already done so.
Mr Schwartz, like Messrs Boyd and Coburn, has also noticed that he is having fewer "flesh meetings". This runs counter to the conventional wisdom of the past few decades, which held that improvements in telecommunications always lead to more physical travel, rather than less. Mr Schwartz used to spend two weeks a month travelling to meet customers; that has come down to less than one week a month. With more than 100,000 customers, he finds that he communicates far more efficiently through his blog, which is translated into ten languages and "on a good day reaches 50,000 people." When he travels, it is now largely for cultural reasons—his Asian customers, in particular, still find physical meetings reassuring. But in general he finds that "face-to-face is overrated; I care more about the frequency and fidelity of the communication."
Still, nomadic work requires other big adjustments in the culture of an organisation and the behaviour of its individuals, says Mr Ware of the Work Design Collaborative. He finds that older and more traditional supervisors usually oppose the idea because they fear that they cannot manage people whom they cannot see. With time, they usually change their minds, says Mr Ware; but this requires "management by objectives rather than face time". Not all workers thrive in such a culture; some prefer the structure of the traditional office. But "anyone who did well at college can work well this way," he thinks. "The prof said 'paper by Friday' but didn't care where you did it; it's the same now."
Death of a road warrior
The bigger problem is stress. Nomadic work means more autonomy, but "anybody who works for himself has a tyrant as a boss," says Paul Saffo, the Silicon Valley trend-watcher. "The danger is that the anytime, anyplace office will lure us into the tiger cage that is the everytime, everyplace office." BlackBerries and their kin have already caused marital problems for many couples, who must negotiate whether the gadget is allowed, say, in the bedroom or on the beach while on holiday. Severe addicts pretend to go to the lavatory at home just to check their e-mail. An office worker's day used to stop when he left the office. When does a nomad's working day stop?
Illustration by Bell Mellor
James Katz, a professor at Rutgers University who leads a research centre on the sociology of mobile technologies, says that the shift amounts to a "historical re-integration" of our productive and social spheres. In the hunter-gatherer, agricultural and pre-industrial artisan eras people did not separate the physical space devoted to work, family and play. Blacksmiths, say, worked from their homes, with family and village life all around. It was only with the capital-intensive work of the industrial era that a separation of homes and factories became necessary, because workers "had to be co-located" in order to work efficiently. This also applied to bureaucracies before the digital era. Now, however, the different spheres of life are merging again.
This leads to more pressure, says Mr Katz. The difference between the integration of work and family in pre-industrial times and today is that in the old days there were clear limits on personal productivity and now there are not. Today "people judge what they should achieve by what they could achieve," says Mr Katz, and with our new technologies we can always theoretically achieve more. People thus "feel inadequate compared with the enormous opportunity they have".
The optimists counter that all it takes is a bit of self-discipline and perspective to overcome that anxiety. Mr Ware advises his clients to draw clear boundaries of etiquette. He has an agreement with his own business partner in another time zone that they not bother each other out of hours. Sun's Mr Schwartz has an iron rule that he spends two hours after work "rolling around on the floor" with his two sons before returning to his gadgets. Mr Coburn admits that work and family are "all one big blur" but likes it that way. Mr Saffo and his wife ban all gadgets during dinner by candlelight.
Almost all the sociologists and psychologists in academia, however, take a more pessimistic view. Sherry Turkle, a professor at the Massachusetts Institute of Technology (MIT) who studies the psychology of gadget use, believes that the addicts, often called "CrackBerries", are "watching their lives on that little screen and can't keep up with it", leaving them permanently anxious.
Rutgers' Mr Katz argues that the "frenzy is only going to get worse." This is, first, because of "random reinforcement", the desultory pattern of rewards that comes with addictive behaviours such as gambling. A CrackBerry winnows through his e-mail throughout the day, knowing full well that most of it is chaff, but cannot help himself because of that occasional grain. The second reason, says Mr Katz, is that most people suffer from the illusion that more information always leads to better decisions, and there is always more information available on our phones and laptops. The third reason is that "people today need to do constant impression-management," because the mere ability to stay connected during weekends, vacations or sabbaticals means that going offline risks reminding others that we are expendable.
The flexibility, freedom and productivity of mobile work thus have a cost. Nomads are constantly juggling the social rights of colleagues, relatives and friends, as well as their own right to downtime. All of this, moreover, now tends to happen in public places that were not built specifically for work, in the way offices were. The next article looks at how that affects those kinds of places.
Not only Google has launched in Russia with Russian version of the homepage and most of the Google Apps, but also they have changed the way links work in the search engine - in all other country versions (at least those which I have tried) clicking on the search result link would open the target page in the same window, however in the Russian version it will launch the new browser window.
Google apparently have carefully studied the preferences of the Russian "internautes" - most of the rival search engines do the same.
Most forms of mobile advertising are still annoying to a sufficient number of people to engender caution, according to a report by analyst group Forrester. Of those surveyed, 65 percent said they were annoyed when an ad appeared while a web page was loading, 57 percent found ads appearing alongside maps annoying, 56 percent found banner ads annoying, 48 percent found paid search ads annoying and the least annoying ad format was pre-rolls for mobile video clips or games, reports BrandWeek. I'm guessing ads showing while a web page was loading was deemed to be annoying because people thought it was causing the page to take longer to load, and the others seem to be related with how familiar people are with the format.
Around 30 percent of people have interacted with mobile ads according to Forrester, but only 1 percent had clicked on a banner ad while browsing on their handset reports MediaPost. The survey also found that only 7 percent of mobile users trust ads on their phones. Mind you, there are no comparable figures given for the level of "trust" on ads in other formats, and it's the same with what people find annoying—are banner ads only annoying on mobile phones or on the web as well?
Anyway, Forrester claims that SMS is the most effective form of marketing because of the way people use their handsets, saying "text messaging is more likely to be successful than mechanisms involving mobile data, including couponing and [two-dimensional bar] codes". The recommendation is to combine text messaging with out-of-home, or things like send-to-a-friend messages and referral incentives.
The Chicago Tribune has a piece on mobile advertising quoting eMarketer in that "worldwide spending on mobile advertising totaled $2.7 billion last year and is expected to hit $4.6 billion in 2008, rising to $19.1 billion by 2012. In contrast, eMarketer projects that Internet advertising in the U.S. alone will reach $25.9 billion this year". The vast majority of the 2008 spend will be in message-based marketing, tipped to reach $4.2 billion this year.
Just few weeks ago at INSEAD dinner at 3GSM in Barcelona I brought up the idea of Apple or Nokia becoming the carriers 2.0....
Think about it - why would you care about which operator to subscribe to if your handset can hook up to any network or wifi spot?... Would you buy content from carrier or from Apple (or Amazon or Yahoo or Nokia)? Would you care about your call rates if you use Skype or have flat rate voice plans across all carriers??
Apple and Nokia understand consumers much better than any of the carriers, so I wont be surprised if they start offering global data/voice service subscriptions (wifi/wimax/3G) in some 3-5 years.... Can you believe that they are not dreaming of killing their good old friends carriers? Read here
This isn't really relevant anymore, but patent filings show that Apple (NSDQ: AAPL) was at least considering an MVNO in the lead-up to the launch of the iPhone. AppleInsider writes that Apple was considering a model "that would allow all primary wireless carriers within a specific region to serve iPhone users by bidding prices for their service in a dynamic, real-time model", with the carrier selection also being able to be made based on the quality of the network and so on. The obvious attraction is that people would get the cheapest calls at a particular time and place. It was a bold plan, except that to be truly effective the handset would need to connet to both GSM and CDMA networks and—eventually—all the 3G upgrades. More significantly, it would have required Apple to convince all the operators to change their business models instead of just one, and without the drawcard of "exclusivity". (via MocoNews).
Editor's Note: Our friends at PartnerUp sent over these tips for how to effectively name your startup. (Sorry, it's no longer enough to be clever!) PartnerUp is an online community that matches founders to cofounders, employees and advisors. Its creator, Steve Nielsen, has written for F|R many times (see list at end). This piece is coauthored with his colleague Megan Dorn.
Writing a business plan can seem like a piece-of-cake compared to the tedious task of creating a company name. It seems like such a trivial component, but so much of a company's success rides on its name. Starting a business with a weak company name is kind of like driving a car without an engine — it probably isn't going to go anywhere.
But don't fret; PartnerUp has put together an A-to-Z guide to deciding on a stellar company name. Bear in mind the following tips and you should be able to find the perfect name for your company.
Acronyms: Be careful when using an acronym as your business name. Acronyms are often confusing and sometimes spell out unintended words.
Back-ups: Create at least two, maybe even three, back-up names for your business. When you go to register the name, your first choice may already be taken.
Competitors: Make a list of the names of your competitors. You can use their names to get ideas, but the main idea is to make sure your name is distinct from the others.
Domain Names: Make sure that the name of your company would also make an attractive domain name. And make sure that domain name isn't already taken.
Expansion: Consider the expansion of your business. If your business were to expand, would the name still be fitting? It should be able to roll with the changes.
First Letter: The first letter in your company name is important because it determines where your business will be listed in directories. Many companies choose to start with a number or the letter "A" to ensure early placement. This was more important in the olden days of yellow pages being a huge ingredient for success, but nonetheless remains a consideration.
Gut Feeling: Never underestimate your gut feeling about a name. You should feel very strongly about your company's name. You are the one who has to live with it.
Headlines: Picture the name of your company splashed across the headlines. Does it look and sound good?
Industry: Make sure the name conveys the industry your business is in. Give some clues as to what exactly you do. This makes it easier for potential customers/clients to seek out your business.
Jot: Jot down a list of adverbs, adjectives, anything that could describe your business. Gather as many words as you can and then start playing around with them.
Kleenex: Even though Kleenex is used in everyday language as a tissue, it is actually a trademark. Common words like Frisbee and Rollerblade are also trademarks. If you have a product that you think is going to be big, come up with a name that could be a trademarked name used in everyday jargon.
Length: A trap that many companies fall into is trying to include too much information in the name. People don't want to remember long-winded names, so they don't. Your name should fit well on a business card, sign or advertisement.
Memorable: This is, by a landslide, the most important element in creating a company name. People should hear your business name and be able to commit it to memory; another reason long names don't work.
Name (your own): Using your own name, or a combination of names for multiple owners, shows that you are willing to give your customers personal attention. But it can be difficult to make a company name with your own name memorable.
Opinion: Test your company names on friends and family. Their opinion matters—after all, they are consumers.
Pronunciation: Your company name absolutely has to be easy to pronounce. If it isn't, people won't even bother trying to remember it.
Quirky: So many people try to come up with quirky and weird names because they think these names will catch people's eyes. Many times they are right, people are intrigued. Your name can certainly have personality, but it should still sound professional.
Regulations: Always make sure you check state regulations on naming a business. Also, make sure that the name of your company doesn't sound like the name of a government entity/agency.
Spelling: The name of your company must be easy to spell. Avoid any and all confusion. If people are confused, they will immediately forget you.
Trademark: Do not teeter with someone else's existing trademark. If there is the possibility that you could be infringing upon it, then there's also the possibility that you could get slapped with a lawsuit.
Unique: Coming up with a unique name is always a good idea, just as long as it still adheres to the previous tips.
Visualize: As humans we innately "see" images when we read and hear language. Try to use strong visual language when naming your company.
Web site: Online businesses obviously have a Web site, but so do many other types of businesses. By creating a distinct name, you can make your name more easily searchable on search engines, resulting in more traffic.
X-factor: Okay, so "X" is a difficult letter to work with, but "x-factor" really does work here. It's what every name should have—that certain something that makes it successful.
Yellow Pages This goes hand-in-hand with the "first letter" entry. When people search through the Yellow Pages, they almost always start at the beginning of the alphabet and work their way down. If you are in a niche industry and have few competitors then this won't affect you much. But if your company is in, let's say, the pizza business, and the name of your business starts with a "Z," don't hold your breath waiting for the phone to ring.
Zero: This is the number of customers/clients you might end up with should you not utilize any of these tips.
See these earlier PartnerUp contributions to Found|READ:
With the end of CTIA Wireless 2008 coming to a close in a couple hours, you can start to see the trends emerging in the industry. One of the ones that really stood out this year was the entrance of easy-to-use and accurate voice-recognition services for consumer applications. One of the biggest announcements of the show was Yahoo's (NSDQ: YHOO) new version of OneSearch, which integrated voice recognition into search queries on the phone. But other voice-centric solutions were also present, including vlingo, Jott Networks, Nuance Communications and of course SpinVox, which had a very splashy booth.
The companies and announcements at CTIA follow close behind Microsoft's (NSDQ: MSFT) purchase of TellMe last year, which has led to an integration of voice into several of the company's services. Voice definitely seems to be on a roll—Marco Boerries, Yahoo's EVP of Connected Life, explained the evolution: "We are really revolutionizing using voice for mobile—it's been around for about for 20-plus years, and on the mobile side, we are just now seeing voice applications" that are easy-to-use and accurate.
Boerries said up until now a lot of voice services worked because it limited the words a person would use—for example local business listings only. However, he said Yahoo wanted something broader. "We found this amazing technology at small company called vlingo, and they have a great product with 10-plus years in this field. You can say anything and they have this great technology to recognize it. We found it. We like it and we combined it with the OneSearch Assets," he said. "We like it so much, we made sure competitors can't use it, and we did an investment."
Here's some other examples:
-- OneSearch: The technology by vlingo gets more accurate the more people use it, and adapts to a person's accent. When searching for The Venetian, Las Vegas, Nevada, it recognized all the words but Venetian, but the user can scroll over that word and type it in, still saving a lot of time.
-- Jott Networks: It allows you to record a message using your voice, which is then converted into text to send to someone in an email. After several times using it, it didn't recognize words like "conference," instead spelling it out as Clonchen (?), but breezed by words such as Nokia (NYSE: NOK).
-- Nuance Communications: The company made several announcements at the show. It said that TeleNav will use its technology to speech-enable its mobile navigation service; Nuance launched a service that will convert voicemails to text messages or emails using a transcription service.
-- SpinVox: The company, which recently raised $100 million, was demonstrating how its service worked. A user called a 1-888 number, left a message, and was supposed to get a text message back with a text version of the service. If a word is not recognized it gets kicked out to an operator who types it in, making the service more intelligent for the next time that word pops up. Two hours after leaving one a message, I still haven't gotten a text to see how accurate it is. The company sells its services through carriers, including Alltel (NYSE: AT) and Cincinnati Bell in the U.S. The booth was impressive with the top portion being a collection of Ken-Like dolls, dressed in suits, with blocks on their heads. The blocks rotated to display different messages. The design was supposed to demonstrate the company's tagline: "Speaking Freely Through SpinVox."
I don't think of myself as a serial entrepreneur since the terminology is most commonly used to describe someone who has had multiple successes (which I haven't). But I also cannot pretend to be a first-timer — without having to explain the tread marks on my forehead.
So I am a hybrid. As such, I do have a few lessons that I can share which I have been writing up as a book, entitled "Survival Guide for Bootstrapping Entrepreneurs". I have finished five of the planned ten chapters and I have posted them online on my blog, StartupForLess.org.
Given that Tuesday was the deadline for applying YCombinator summer funding, I imagine right now there must be at least a few hundred aspiring entrepreneurs (founders and cofounders) waiting to jump in with both feet. At the risk of being presumptuous, I've distilled my lessons-learned into the following three points and offer them to the contestants of the YC contest with my best wishes.
Remember: There are no losers in entrepreneurship except those who stop trying.
A. Entrepreneurship is a Responsibility
Entrepreneurs have a responsibility to focus on making money.
Entrepreneurship is about the "new" violently overthrowing the "old" and it is not an abstract exercise. In doing what we do and asking others to follow, entrepreneurs affect people's life and the life of their families. And we affect them profoundly.
I have learned that building a successful startup requires the perfect alignment of many people's diverse interests and desires. To succeed, we must figure out what rocks our hearts, our minds and our souls, providing our constituents with what they need and what they want.
People are driven by many things: money, fame, power and destiny.
But as the company grows and as more and more people are brought together, I have learned that the only thing that everyone has in common would be money. So my experience is that from the beginning, as an entrepreneur, we must focus entirely on making money. Doing otherwise would be irresponsible.
B. The Times They Are a-Changin'
Being an entrepreneur means you don't give up which also means that you are bound to try to solve the same problem over and over again, albeit with more experience, and expect different results.
So the one thing that you have to keep in mind is that in time everything changes and it could change even between the time you put together the team and the time you receive initial funding (from YC or anyone else), or between the time you execute and the time you ship products.
My experience is that peripheral vision is as important as vision and you have to learn to make adjustment as reality presents itself.
In other words, to be successful as an entrepreneur, you need both a compass (which reacts to external stimulus) and an inertia guidance system (which is inside your heart but very important in guiding you through the dark clouds).
In my last startup, it turns out that being our own "surrogate" customer was the most important ingredient for our success.
My fellow co-Founders had worked in the network monitoring side of the networking business for many years. They knew about their customers' pain first hand because as a monitoring tool vendor, they knew how hard it was to deploy their own products. So in a sense, they were frustrated that their ecosystem was disjointed and the product that they invented had been their dream tool.
Had they not been long-time veterans of their own industry (which they help built in the past 20 years), they couldn't have gotten that important insight by just talking to our customers. Customers know what to object when you present them with an imperfect product but not when you present them with a perfect PowerPoint. Henry Ford had said that if he were to listen to his customers, he would have built a faster horse because that was what his customers wanted.
To put it in more modern context, it is sort of like Steve Jobs and his iPod (and iPhone). It is hard to imagine how things could have become what they are had Steve not been a music fanatic (not just a fanatic). Steve didn't rely solely on his customers neither to define his dream toy. Instead he listened to his heart because he believes he was the perfect surrogate customer.
And that was what we did. We listened to our hearts (even though we were just a bunch of engineers).
In a way, this explains why the demographics of YC'er tend to be younger (at least much younger than me). Part of that is self-selection but part of that is by design. I believe time is a-changin' and we are in the midst of a great intergenerational transfer of wealth. My kids clearly have much more resources than I did when I was a college student, not just because of the resources that I can provide but also from their grandparents.
This combines with the dramatic improvement in channel efficiency (for information, as opposed to for hard goods which was for the last twenty years) really change the consumer pattern of the younger generation. So my generation of entrepreneurs would be a far less optimal "surrogate" customer of the new era.
It is now your turn … having miss the opportunity to invent Ethernet and desktop computing, you can start inventing the next Facebook or the next YouTube.
But being young often means being inexperience.
C. Inexperience is not a Sin
Experience really matters in a startup.
However, as it turns out, experience is important but judgment is too, and everyone can be a victim of his/her experience (which ironically could often cloud their judgment). Much of a startup's success and much of the difference that an entrepreneur can bring to a startup have to do with his/her ability to make the right decision (at the right time).
In a startup, it is actually not about making the right decision but about making the decision right. So being a successful entrepreneur requires experience but it also requires good judgment.
And good judgment has to do with when and how to build up creditability with the team and the shareholders, and when and how to cash in your political "earned" capital to mobilize the company behind an unpopular decision that you have made based on imperfect data.
In summary, experience is necessary for a startup but not sufficient. On the other hand, paradoxically, as I have learned the hard way, as an entrepreneur, having a strong will to succeed and the tenacity to follow through on difficult decision is sufficient but not enough.
You need a little of both (and a whole lot of luck, with the definition of luck being the complete absence of bad luck).
Good luck to all you First-Timers and Serial First-Timers!
Denny Miu is a cofounder and former CEO of Gigamon Systems. Denny has extensive experience in developing technology, products and business relationships. He has been a Professor, an engineer, an entrepreneur, a team leader as well as an individual contributor.
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