Transitioning from a service business to a product-driven company

It has been awhile since my last post as I have been busy with board meetings. In addition, I met a number of interesting companies, a couple of which were service businesses in the process of transitioning their models to become product-driven software companies. It is a familiar formula to many out there. More often than not, the principals of a service business may have developed expertise and a network in a particular industry, developed a solution for a customer, and decided that they could resell it multiple times turning their business from a service one to a more scalable product-driven company. This makes a ton of sense as the entrepreneur gets to understand a particular market and pain point for customers. In addition, the early stage business gets the customer to pay for its initial product development. Having met with a couple of these types of companies this week, it reminds me to issue a few cautionary warnings for entrepreneurs:
  1. Just because one customer wants it does not mean you have a big market opportunity-do your homework to make sure the customer’s pain is not unique and that this is not a custom development job
  2. Have one version of your product, not one for each customer-I have seen a number of companies that claim they are a product-driven business with 5 customers when in reality they are still a service shop because their customers all have different versions of a product.

There is one company that my team met with a couple of years ago that had a marquee list of customers, all of whom had license deals greater than $300k. However when we did customer reference checks and deeper due dligence on the technology, we learned that all of the customers had different versions of the product. We ultimately passed on the deal as it was quite evident that the business had not made the full transition to a product company. I recently caught up with the former VP Engineering who was looking for a new job. In discussing why the company failed, this is what he basically had to say. While the company had great customers, the support costs associated with supporting 3 different versions of a product killed them. He had to spend too much of his team’s team fixing problems for the installed base rather than devote most of his resources developing the next generation product. Consequently, their product suffered and did not meet the demands of the wider market. While turning yourself from a service company to a software business may be a good idea, be extremely careful about the customers you sign and remember to make sure that you really have Continue reading "Transitioning from a service business to a product-driven company"

Has the individual investor learned a lesson?

There have been a number of IPO fillings recently, but the one that intrigues me most is the filing by Lindows. As many of you have read, Lindows/Linspire just filed an S-1 to raise $57 million in an IPO. WR Hambrecht is the lead underwriter and will utilize its dutch auction methodology to raise money from individual investors. In my mind, what happens with Lindows will be a barometer of the psyche of the individual investor. It well tell us whether or not the individual investor learned a lesson from the bubble. It will tell us whether or not speculation will run rampant again. As you know, I do find Linux on the desktop intriguing. That does not mean that I believe this is the year and that you should go public now on $2.1 million of revenue in 2003 with a net loss of $4.1 million. On top of that, of the $57 million they are raising, $10 million is going to pay off Michael Robertson, the CEO, for a line of credit he extended the company over the past couple of years. As per the filing,
The approximately $10,400,000 of net proceeds that we intend to use to repay outstanding debt obligations will be paid to Michael L. Robertson, our founder, Chairman and Chief Executive Officer, as payment in full of all remaining outstanding amounts under a revolving line of credit. Mr. Robertson has advanced us funds under the line of credit since July 2002, including advances of $5,600,000 during 2004. Amounts borrowed under this loan are used for our operating expenses. The loan bears interest at the rate of 10% simple interest per year and matures on June 30, 2005.

So not only is this a speculative offering, but also one where the largest shareholder gets paid back $10 million off the top. Michael did pay $4.5 million for the shares that he currently owns but 2/3 of his total capital will be off the table. So how much skin in the game will Michael really have to make this company work? Does this sound like a good investment to you? I am not opposed to the dutch auction and do believe that the methodology has a place in some deals. My big fear is that if this deal does happen, it will only confirm my belief that the individual investor never learned a lesson from the bubble. For the individual investor to forget so quickly about all of the pain and suffering we just went through really scares me. The post Has the individual investor learned a lesson? appeared first on BeyondVC.

Founder transition

There are a number of good posts about founder transition in light of the recent changes at Friendster and Plaxo. If you are an entrepreneur, I suggest reading Ross Mayfield’s words of wisdom on this topic. What makes it so interesting is that Ross is a founder, was replaced at a prior company, and is back again as CEO of another company, Socialtext. As Ross says,
Not a day goes by where I don’t brace myself for this change. As a CEO and Founder of an early stage company, I know new stages will come. I constantly question myself if I’m the best person for the job, because the company is more than just me. Its a source of livelihood, investor return and customer bliss — all of which improve over time. I am really darn good at this stage of the company and have proven it in the past. I hope to test my capabilities at latter stages, but also recognize that the day may come where regardless of my ability to lead, manage and deliver — environmental forces may call for the new.

As a VC, we always like to have an open and honest discussion pre-investment about what the entrepreneur expects from us, and what we expect from the founding team. When discussing the idea of transition and building the right team, we learn alot about the founders and what drives them. This does not necessarily mean we will replace the founder with a new CEO, but it is a great way to understand what motivates the founder and how committed they are to creating a successful company, not a one-man show. Some simply want to be CEO come hell or high water-we take a pass on those opportunities. Some tell us what we want to hear, but their body language tells us otherwise-they tense up and there is no positive feeling behind their words. Others like Ross tell us what we want to hear and internalize it. They know the drill and want to be given the opportunity to run the show and prove that they can do the job but at the same time understand that change may happen. These are the founders in which we like to invest. The post Founder transition appeared first on BeyondVC.

What aisle/what shelf?

I met with an entrepreneur this week who had a fantastic background and great technology. However, it was a technology in search of a problem to solve. Why? Because he could not readily answer some fundamental questions like what problem are you solving, who is the buyer of the product, and what is the amount of pain the buyer has without your product or solution. This is a problem that I see time and time again. Additionally, many entrepreneurs cannot answer the question, “what aisle, what shelf?” When you go to a supermarket you know that you go to the condiment section to find ketchup, mustard or BBQ sauce. On those shelves, you will find different types of condiments and different brands organized in a way that makes sense. While on any given visit you may see new products on those shelves, they are still condiments. Similarly, your sales prospects need to know where your product fits to determine where you come out of the budget and who is responsible for evaluating new solutions. If you try to create a brand new market category that no one understands simply that will not work. Similarly you do not want to sound like everyone else. Going back to our earlier analogy, while you want to find a large enough aisle to put yourself into, the struggle is expressing your uniqueness in the 30 second elevator pitch. You do not want to be a “me-too” product lumped in with 30 other companies. If not done correctly, you could end up being thrown into the general data integration, security, or performance management pile. 2 approaches I have seen include defining your own category (aisle) or your own sub-category (shelf). Doing the former is riskier and more expensive (defining a new market is not cheap), while offering the opportunity for outsized returns. More often than not, entrepreneurs with great technology feel like they have to create a distinct new category, and many times they end up creating a market that no one understands or cares about and one in which their dollars come out of the experimental IT budget-not a large bucket or great place to be. It takes time for a new category to become a budget line item. In my opinion, creating a subcategory is easier, gives a company the opportunity to express its uniqueness, allows the sales prospect to understand generally where your product fits in the budget, and still does not prevent you from creating your own category (aisle) in the future. While this may all sound very basic, I would not go pitch a customer or VC without having this nailed down. The post What aisle/what shelf? appeared first Continue reading "What aisle/what shelf?"

Great business model

OK, so times have been tough in the IT market over the last couple of years. Luckily, it is starting to get better. For those of you who understand that selling IT software to enterprises is not easy, I thought you would enjoy this email from one of my portfolio companies regarding differentiation and “secret sauce.”
As X and I have been trekking around Sand Hill Road, and everywhere else venture funds are located, we’ve really paid attention to the issues of differentiation and “secret sauce”. As such, we’ve decided that our company needs a dramatic shift and we have found the answer. We worked on the plan at San Jose airport last night, watching the behavior of customers for this exciting new product. It was reconfirmed this morning as I left Starbucks.

Our company is going to get out of software and information technology completely. No, we are not mad, well, we may be, but that has nothing to do with this discussion. We are going to take the most plentiful resource on the planet, put it in handy plastic bottles and sell it for about $4 per bottle in airports and other convenient locations; but if you choose to buy it from your local grocery store by the case, it will only cost and $4 for a case of either 12 or 24 bottles – purely based on random decision making. This market has been validated by at least 50 other companies, who reap millions of dollars of profit from this market place each month. Our “secret sauce” will be the label – yes, it will be our company name and logo that will differentiate our product from Evian, Vasa, Fiji, San Pelegrino and those many other indistinct brands.

We look for your support at the next board meeting to make this dramatic shift in our company’s strategy!

Please scroll down for some final thoughts!

Can you imagine presenting the idea of bottled water to VC? We of course thought about it after X and I bought two frozen yogurts and 2 bottles of water for $12! Not only wouldn’t we consider drinking airport tap water, we bought bottled water with a name, Vasa, that would make one think it came from Germany – why would I buy water from Germany? I totally cracked up leaving Starbucks (there’s another one!) with my $3.60 non-refillable cup of coffee as I saw a case of water for $3.99 outside a grocery store!

Have a nice weekend everyone!

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Linux on the desktop (Continued)

I have written about linux on the desktop in the past (here and here). Today, my partners and I installed the latest version of Xandros 2.0, and I have to admit we were blown away. It installed in about 10-15 minutes with a couple clicks of the mouse, and we had a full working version of a linux desktop which looked and felt like a Windows machine. It partitioned our hard drive so Windows and Linux could run on the same machine (if you really want it to) and allowed the Linux desktop to seamlessly interoperate with my Windows network. The file manager was just like Windows Explorer, and I could easily find, use, and set permissions on my old files. If you have not tried it yet, I encourage you to go to Xandros to buy a copy of the deluxe version ($89). The great news is that we were able to take an old laptop with a P133mhz chip and substantially improve the performance of the machine, extending its useful life. I am definitely going to install this on one of my old laptops at home. What is even more interesting is that with an integrated version of Codeweaver’s Crossover office, you can run many windows-based application seamlessly on your Linux desktop. Unfortunately iTunes does not work yet. Go to the site if you want to learn more about what other applications work. So the Linux desktop is here and much improved, and what is important is that it interoperates with Windows from a networking and management perspective, all very necessary when any enterprise looks at TCO (total cost of ownership). While I do not anticipate huge enterprise adoption this year, I definitely see less barriers to its adoption in the years to come. The post Linux on the desktop (Continued) appeared first on BeyondVC.

Software co-op/software reuse

Lee Gomes from the Wall Street Journal wrote an interesting piece (sorry, not a free site) in his Portals Column about Project Avalanche which is essentially a software co-op for businesses to share their applications and code. Current members include Jostens, BestBuy, and Cargill. According to Lee, the Avalanche Project was started because the founders kept asking themselves the following questions:
“Why were they writing such big checks to their software companies, but getting so little in return? Why were their in-house programming staffs writing the same sorts of custom programs written at thousands of other companies? If Detroit car makers can collaborate on research, why couldn’t U.S. technology users?”

The project is in its early stages but has grand ambitions. One of the founding members discusses what would happen if the group banded together to create their own CRM system or their own Linux-based desktop environment, saving all of the participants lots of dollars on licensing fees. While the idea of software reuse is not new, as developers have talked about this for years, the implementation via a co-op is what’s unique. In addition, most of the other companies or sites that I have seen specialize in sharing snippets of code versus full applications. If you are interested about software reuse, I encourage you to read up on a company I met with early last year, Artifact Software. Artifact Software has a tool that allows developers to collaborate and create a code sharing community. Its initial target market will be selling to enterprises, allowing their developers to collaborate internally to become more productive. However, its business model is to seed the target market with its tools by allowing users to download its product for free and share code via an open website at www.codejack.com. The website currently lists 33k artifacts of code with over 23k users. Leveraging the open source philosophy, Codejack is not only about searching and finding code, but also about testing, rating, and reviewing code. Other companies to keep an eye on include Component Source and Logic Library which is more enterprise-focused. While developers have been talking about software reuse and its ancillary benefits for years, I have no doubt that given a tough climate for IT spending and the acceptance of open source, that the idea for software reuse and collaborative development will become a big topic again. In the long run, I am sure that the members of Project Avalanche will contribute and develop some interesting software. The post Software co-op/software reuse appeared first on BeyondVC.

Merrill Lynch launches nanotech index

It was just a matter of time before an investment bank launched a nanotech index. During the bubble years we had an index for everything ranging from Internet ad-related companies to Internet commerce companies. Now we have a nanotech index. Is this a sign of another bubble? Well, it is true that nanotech is overhyped now, but I have no doubt that it will one-day be a pervasive technology that will drive growth in alot of industries ranging from materials to semiconductors to health care. Merrill Lynch’s Nanotech Index is an equally weighted index of 25 companies that derive a significant percentage of their future profits from nanotechnology. I encourage you to visit Merrill’s site for a copy of the report. Steve Milunovich, Merrill’s technology strategist, summarized as follows:
Mr. Milunovich noted that there are two significant differences between the Internet and nanotechnology. “Unlike the Internet, significant intellectual property and patents are barriers to entry, and yet barriers to adoption are low.”

Nanotechnology is the science of fabricating things smaller than 100 nanometers. One nanometer is one-billionth of a meter. Merrill Lynch believes nanotechnology is the next logical step in miniaturization and that it is only a matter of time before the impact is felt in many industries. “Building at the nano-scale enables new interactions in materials, semiconductors, and biological agents,” said Mr. Milunovich. “The new scale allows manipulation on the cellular level, which should enable new discoveries in pharmaceuticals, biodefense, and many healthcare industries.”

I am not a nanotech guy, but IMHO, I have no doubt that nanotech will be big someday and it is really only a question of when it will happen. While I am not actively pursuing this from a VC perspective now, I am going to track this index for personal interest to get a better understanding of what companies are doing with nanotechnology and how they perform over time. Update-Rich Skrenta suggests visiting the Topix Nanotech page for those interested in daily updates which are not heavily research oriented. The post Merrill Lynch launches nanotech index appeared first on BeyondVC.

Thoughts on the Microsoft settlement with Sun

If you are wondering about why Microsoft settled with Sun, I suggest reading David Kirkpatrick’s excellent piece on the deal. In the article, David surmises that the power of the open source movement is really the driver behind the deal.
Open source’s influence is far greater than its current market share in software might suggest. The open-source model increasingly defines what’s possible in technology. What matters now is not where a technology comes from but how it works with everything else. Open-source software can be made to play well with others more readily than any technology we’ve ever seen. Even more than its low price, that’s why companies like it so much—they can modify its guts to their specific requirements.

Right on. This is not a story of free versus paid, but a story of freedom. If you talk to CIOs, you will consistently hear that they favor open systems and architecture, and that they do not want to be a victim of proprietarty vendor lock-in. While Windows still has a larger share of the server pie, what open source is doing is giving the customer choice, which ultimately gives them power, the power to demand interoperability or turn to another non-proprietary solution. Yes, there are other drivers behind the deal but as David points out now Microsoft and Sun can focus efforts to fight a more common enemy, IBM and the open source movement, which threatens their very existence and dependence on proprietary software. The post Thoughts on the Microsoft settlement with Sun appeared first on BeyondVC.

The Street Does Not Forgive

I was with a banker today talking about the influx of new IPO filings and the end result of our discussion was the following:
  1. Filing does not mean anything, the companies may never go public
    2. Performance is key-revenue visibility is of utmost importance because the street does not forgive
Case in point-if you miss your numbers within the first two quarters after you go public, forget about it. Take a look at Callidus Software which is a provider of Enterprise Incentive Management software systems to global companies, used to model, administer, analyze and report on incentive compensation, or pay-for-performance plans. The company went public in mid-November, hit a high of close to 21 and was recently punished for preannouncing a shortfall in revenue. The stock now trades at $8.34. cald.gif Here is what the CEO had to say:
“Callidus Software, like many enterprise software companies, transacts a significant portion of its quarterly business at the end of each quarter,” stated Reed Taussig, president and CEO of Callidus Software. “Our quarterly license revenues are dependent on a relatively small number of large transactions involving sales of our products to customers, and any delay or failure in closing one or more of these transactions could adversely affect our results of operations. In this quarter, we failed to close several transactions due to customers’ merger and acquisition activities. In addition, a number of customers failed to conclude contracts due to their timing or budgetary considerations. We are disappointed with these results. However, we continue to be optimistic about our business, given the potential of the emerging EIM market, our product position, and our strong customer base. We will address second quarter and full year guidance on our planned April conference call.”

So if you want to go public, please make sure you have the visibility in your sales pipeline to hit your numbers the first couple of quarters out of the gate. What this also shows is the enterprise software business is a tough game. It is difficult to sell large licensed software and have real predictability. Salesforce.com will be an interesting company as their hosted, subscription model gives real strong visibility on future quarters. That being said, if you want to go public, you need strong pipeline coverage to make up for potential end of quarter jockeying by potential customers. You need good recurring maintenance revenue. Don’t overpromise on your initial quarters post-IPO, give yourself some cushion to exceed financial expectations. Because if you don’t, the street will not forgive. The post The Street Does Not Forgive appeared first on BeyondVC.

Personalized Search

Google just launched a new version of personal search based on user preferences. In early 2000, we seeded a Xerox PARC spin-out called Outride (formerly called Groupfire) which aimed to bring personal search to the web by learning from a surfer’s prior searches or his workgroup or community’s prior searches. For example, if you searched on the word “Java” how does the engine distinguish Java the computer language, Java the coffee, or Java the island. So based on user behavior if you were a tech geek and into computer programming, it would serve you up the Sun Java and so on and so forth. The business model was to be an “arms merchant” to all of the major search engines like AOL and Yahoo. The problem was that it was very difficult to monetize. How do you get a search engine to pay for a supposedly more personalized search result? So at the end of the day, we ended up selling the assets and patent to Google. Fast forward to now and Google is bringing this back into the market, although it is using its latest acquisition, Kaltix, as the basis for its search. This one is based on profiles rather than behavior. As Jim Pitkow, co-founder of Outride says in a San Jose Mercury News article:
“That’s good because the search engine doesn’t have to try hard to infer anything from the user’s behavior. But it can also be a disadvantage, because a person’s interests will change over time, but they may not update their Google profile to reflect that. It’s really unclear what it’s learning about me,” said Pitkow.

While the idea for Outride was interesting, we were way ahead of the market without a clear business model. It is a long story but the old adage “pioneers get arrows in their backs” certainly applies to this company. Anyway, it seems that Eurekster is doing a very similar job to Outride except that it has created a destination site. It will be interesting to see how personalization and the search wars play out over the next couple of years. I, for one, am a big fan of the original Outride model based on user behavior. Of course, that can open up a whole new issue related to privacy. If you are interested in personalization, I suggest you visit the Eurekster blog for a nice comparison of Google and Eurekster. The post Personalized Search appeared first on BeyondVC.

A tale of two IPOs

So while I was at PC Forum, my partner, Ned Carlson, sent me an email on the recent IPO filing of Seven Networks. Having talked to a number of bankers, we always thought that one needed $6-8mm of quarterly revenue, profitability for at least 1-2 quarters, and good visibility for the rest of the year in order to go public. It seems that the filing for Seven Networks goes against the grain. According to its website, “SEVEN is a leader in Out of the Office™ technologies; our mobile email software makes it simple and affordable to access corporate and personal data while on the go. SEVEN’s software provides secure, real-time access to email and PIM information via a wide variety of mobile devices.” The company has a blue chip list of customers like Cingular Wireless and Sprint PCS in the United States; Globe Telecom, KDDI Corp, NTT DoCoMo, Optus and Singtel in Asia Pacific; and mmO2 and Orange in Europe. However, we still do not understand how it can go public with the following numbers: 2002 revenue of $6mm, net loss of $19mm and 2003 revenue of $7mm and a net loss of $13mm. What bothers my partner, Ned Carlson, even more is that some of the investors are even selling in the $100mm raise. What I hear is that they are going to execute a roll-up strategy. Isn’t Visto already doing this as well? Does anyone know the story behind this IPO filing? On another front, you have Brightmail (an anti-spam vendor) which recently filed with some nice numbers. Revenue for FY03 was $26mm up from $12mm the previous year. In addition, the company had net income of $1.2mm for FY03. These are definitely numbers in line with what we were told on the IPO front. Concerns could be the concentration of customers via Microsoft. According to the Computer Business Review in the UK, of the 305 million mailboxes they screen, 145 million are Hotmail and only 5 million are enterprise. It is amazing how 2 companies with such different numbers can file. All I hope is that both of these companies can meet the expectations of investors and deliver on their respective stories. What we all do not need is a return of the speculative IPO. Tim Oren and Fred Wilson both comment on the action this week. The post A tale of two IPOs appeared first on BeyondVC.

Thoughts from PC Forum-going into attack mode

Once again, I am not going to blog the panels at PC Forum, but you can find some good commentary on the conference via other bloggers from my post yesterday. Other good posts can be found from Dan Gillmor, Jason Calacanis, or the PC Forum Eventspace. However, what I would like to share with you is some conversations I had with some VCs and entrepreneurs over the course of the day yesterday. While the panels are interesting and the speakers can stretch your mind, what is great about PC Forum is the high-level networking that occurs during the day. So what did we talk about? There were a number of attendees who were here during the past few years and their businesses raised a fair amount of capital and somehow they managed to survive the nuclear winter during the 2001-2002 period. What allowed them to do it? What are the challenges they face now? One observation that I discussed with some others is that the very principles that made companies successful during the bubble period are the very ones that would land you in bankruptcy court during any other business period. Some of these principles included growing revenue and headcount at all costs with no focus on profitability and spending tons of money on building a larger than life image-lots of money thrown at PR firms and advertising with no idea of who your target market was or what your customer really wanted. In other words, alot of these companies were based on cool technology and not on making customers happy. On top of this, VCs threw too much money at these companies and there was no need for entrepreneurs to be resourceful and creative in order to get things done. Let’s fast forward to now. The companies that survived this downturn were excellent at cutting costs, repositioning their products for new markets, and being resourceful and creative to survive. While these are some of the business principles I want my companies to continue to adhere to, I also want to caution that there is a danger in being too cheap. Some of these companies were so shellshocked from what happened during the past couple of years that they have become too cautious. For anyone that has been through the tough years, the only thing I can say is congratulations for surviving but now it is time to take some calculated risks. It is time to get out of the bunker and go into attack mode. Go after your competition, take some calculated risks, and focus on creating some revenue growth. What is different now than before is that most companies that survived the nuclear winter know who Continue reading "Thoughts from PC Forum-going into attack mode"

PC Forum 2004-Monday morning

PC Forum is off to a great start this year with an interview with Eric Schmidt from Google and a panel with the CEOs of AOL, Yahoo, and Google. I do not plan on taking detailed notes so I suggest you view Ross Mayfield’s blog and posts to stay current on the conference. I also suggest visiting David Weinberger and Brett Fausett for more notes. With respect to the first panel, I took some interesting notes on spam. AOL and Yahoo are doing all that they can to stop spam, catching high 90% of it. The frightening aspect is that the high amount of spam that you do see is only the 4-5% that is not filtered. AOL gets 2.7 – 3 billion spam messages per day which is trying to get into their system. Not a surprise that spam is a huge issue, but these numbers are. No one claimed to have a silver bullet, but rather advocated the use of multiple ways to overcome this issue. Bruce Schneier had some interesting comments on the security and risk panel. Specifically, Bruce said that security is social and not about technology. Yes, there are technical causes and solutions for security but it is irrelevant if the social and economic model are not fixed. For example, there are plenty of spam filters out there but we still get tons of spam. The economics work for spammers. For users, it comes down to balancing security with the cost to mitigate the risk. People will make decisions based on economic value and cost. I totally agree here. Next up was the CIO panel (Dawn Lepore, former CIO of Schwab, Shai Agassi, SAP, and Rafael Sanchez, Burger King). Dawn Lepore said that software is one of the biggest issues for CIOs. It is complex and costs are excalating tremendously. Software vendors and customers are diametrically opposed as the software vendors want to lock-in customers and the customers want flexibility. How does seeing an architecture diagram where the vendor’s products are in 12 places in a stack solve her business problem? Given this tension between vendors and proprietary lock-in, it is no surprise that open-source and open-platform technology and new business models like the hosted or subscription sale are spreading rapidly. The more you hear the panel talk about technology and the job of the CIO as being a risk manager, you can clearly see why it is so hard for an early stage company to land a big customer. Who wants to take the risk of buying a new technology from a new vendor? Yes, it happens but it is not easy. I guess it is not a coincidence that a number of Continue reading "PC Forum 2004-Monday morning"

The Globalization of Education

Jerry Colonna and I had an interesting dialogue on the topic of utilizing offshore resources. In the end, Jerry and I advocated that education is the key to long-term success for the US. Offshoring of jobs will continue to happen, and it makes sense economically. However, in order to maintain our lead in the US, we need to make sure to educate our children and workforce to move up the value chain so we can continue to innovate, design, create, and own our core Intellectual Property. I just had an interesting discussion with another PC Forum attendee about his daughter’s college application process. He mentioned that it is more competitive than ever and that leading universities had to turn down many applicants with great grades and scores. In his discussion with a leader at an IVY League university, he mentioned that the university could fill its entering class with students from mainland China alone without any adjustments to its admissions process. So China also clearly sees the value of Intellectual Property, and it will be interesting to see how this race to educate our societies develops. Of course, this raises larger questions about how our colleges and universities create the right geographic diversity amongst its student population. However this debate evolves, what is great about this country is that we do educate and train many foreign-born students who contribute immensely to our economy and help us maintain our competitive edge. The post The Globalization of Education appeared first on BeyondVC.

Lunch with Pat Cox-thoughts on offshoring

On Wednesday, I had the pleasure of attending a small group lunch in honor of Pat Cox, President of the EU Parliament. It was quite a treat as I got to hear his viewpoint on Spain, terrorism, immigration, and offshoring amongst other things. Since I tend not to write about politics, I thought I would share Pat’s thoughts on offshoring. As you know, in the US, there is increasing political pressure on offshoring and a movement to put legislation in place to prevent and slow this down. Offshoring is certainly a key issue in the EU as well, and Pat offered an interesting and growing perspective on offshoring and how to deal with it. Pat believes strongly that it is not about protecting jobs but protecting people. The jobs will come and go but to the extent we can protect people and train them and teach new skills then we will all be better off in the long run. I certainly share this viewpoint and would like all of us to figure out how we can contribute to this line of thought. If you want to stay on top of all things offshore, I suggest that you visit a new site called Offshoreupdate.com. The site is currently an aggregator of offshore outsourcing stories, but it will soon begin publishing news stories. This is a perfect example of what Jeff Jarvis calls “microcontent.” Throw up a blog, some links, and some Google Adsense and see where it takes you. The post Lunch with Pat Cox-thoughts on offshoring appeared first on BeyondVC.

Open source Router? Open source moves up the stack?

I finally got a chance to catch up on some trade rags and came across this interesting blurb from Network Magazine about XORP, the Linux of Routing. While an early project from UC Berkeley, I encourage you to take a look and keep it on your radar. This is yet another example of the potential commoditization of high-end products. Here is an excerpt:
“Since the routing code and the OS are free, the biggest expense will be the hardware. Commodity PCs make notoriously poor routing platforms, so they’ll need a sufficiently gast bus structure to boost their total processing and throughput. The recently standardized PCI-X 2.0 fits that billing, providing bus sppeds reaching 700,000 64-byte Ethernet packets per second. That’s good news not only on the performance front, but for the price tag as well. “A machine with 1GByte of RAM could easily be assembled today for less than $1,500,” says Orion Hodson, a XORP developer. By comparison, a Cisco 7304-Cisco Systems’ highest-grade enterprise router with software forwarding-runs $22,000.”

It is still early days for XORP and the platform still needs to address performance and security issues, but the point is that any software product with a large enough installed base can be vulnerable to open source competition. Speaking of open source software, MySQL just announced a new version of its database which has built in load-balancing and automated failover so it can be deployed in large transactional environments. This is a big deal and grealy expands the market opportunity for MySQL and will better position it against Oracle and IBM. One other open opportunity for attack in the database market is the reporting and analytics end. One of my portfolio companies which I have written about before, Metapa, is leveraging open souce technology, mainly Linux and PostgreSQL, to deliver terabyte-scale data warehousing on a cluster of commodity hardware. The secret sauce is its proprietary Linux database clustering software which is “purpose-built” for Business Intelligence. In early benchmark tests, the product has shown up to 10-50x performance improvements over existing data warehouses run on traditional enterprise systems. So if I were an incumbent, I would be concerned about these developments. The post Open source Router? Open source moves up the stack? appeared first on BeyondVC.

Staying close to your customers with blogs and RSS

As I have said a number of times, I am a big believer that companies should start looking at how to use new technology and standards like blogs, wikis, and RSS/Atom from a product perspective and not solely for news publishing and aggregation. What do I mean by that? In response to a post I wrote about why I blog as a VC and the benefits of it, Brandon Wirth sent me a link to a piece he wrote about the future of customer relationships. In it, he summarizes by saying:
In the very near future there will be a trend to use Social Networking to create product communities. This will replace focus groups, and market research trends of today with direct interaction with those most likely to buy a given product. This is the American Idol for big business. Instead of trying to pick what the best solution is and betting the farm on it, you let the market pick a winner for you and they will already love the product before they have it. The focus becomes on the end user. They feel ownership in the creation of the product, and already know they want it.
Not sure I agree on the “American Idol” for big business, but the point of staying close to the customer is an important concept. I certainly see a world where companies use new technology and standards like blogs, wikis, and RSS to build a relationship with its users and to empower them to participate in a company’s success. This conversational based approach to dealing with customers is a great and EASY way for companies to share information on new features and releases and get constructive feedback on their products, receive new ideas, and frankly hear about the gripes. All this should help companies build a better relationship with customers and gather real-world data. While the example Brandon uses is a consumer one, I also greatly believe that this applies to infrastructure software as well. As I mention in an earlier post, it is too easy for companies to get enamored about their technology and to forget that end users need a great experience. Building fanatical user communities is not a new idea, but the point is that new standards and technology make it easier for companies to create, manage, and leverage them in a frictionless and organized way. Along these lines, Jeff Nolan just put up a new post on his LinkedIn experiment. And in it, he praises Reid Hoffman, CEO of LinkedIn, for paying attention to blogs and dealing with Jeff’s experiment in a highly positive way. I encourage reading this post as Jeff has some great comments on how Continue reading "Staying close to your customers with blogs and RSS"

Hiring Talented Sales People

As you can see, I have been spending alot of time with my portfolio companies hiring in a number of functions to create growth. That is obviously a good sign. Hiring is such an important skill, there is no science to it, but research and common sense help. I am sure you remember the old adage, hire slow, fire fast. Anyway, when it comes to sales people, let me give you a rule of thumb-never hire sales people that have stuck around in a declining business for too long. Any sales person worth his weight wants to be where the action is, and if the company is not growing, the TALENTED PRODUCERS ALWAYS LEAVE FIRST. It may sound like I am being master of the obvious, but sometimes it is hard to remember this, especially since many sales people interview well. Do your research on their background and the companies at which they worked. Be extremely careful about the candidate that rode a company from $40 million of revenue down to $10 million because you can bet that if the guy was hungry and talented, he would be somewhere else! The post Hiring Talented Sales People appeared first on BeyondVC.

Building your business around customers (continued)

Forgive me for being obsessed with customers, but after all, without them, how can you have a business. Anyway, I was interviewing a VP of Engineering candidate for one of my portfolio companies, and when I asked a question about the most significant lesson that he learned from one of his prior jobs, this was his thought-while the core technology is important, focus on providing the customer with an unbelievable user experience straight out of the box. What will the customer see and touch first. Start with the installation process. Make your product the easiest to install. If it goes smoothly and quickly, if you can do it plug and play or remotely, the customer will already begin to have a pleasant experience with your product. Make the GUI as user-friendly as possible. If it is as intuitive as using your email or browser, then it will make it easy for the customer to get the team using it with minimal training. Finally, make it easy to manage. Have a nice management console that allows an end user to administer the system, update it, and manage multiple licenses as simply as possible. So while having great underlying core technology is important, everyone will be selling technology and features and function. What many companies forget early on is that having a great customer experience can provide real differentiation and can often mean the difference between success and failure in competitive markets. As for the VP of Engineering candidate, he is on the shortlist as it nice to see someone with the experience to build product and manage teams but also think from a business-oriented perspective The post Building your business around customers (continued) appeared first on BeyondVC.