Globalization and the world economy

I remember 2 years ago the brouhaha over globalization and how every startup needed to adapt or it would die.  I truly am a fervent believer in globalization and how offshoring some development work can make a ton of sense from a cost and time advantage (24×7).  As I look across our portfolio, what is interesting is that while the comparative advantage of developing in say, India, was once 4 to 1 it is looking like it is more 2:1 or lower as you factor in costs like management overhead, travel, etc.  In addition, the companies that actually took advantage of offshore development and were successful were the ones that opened their own wholly-owned Indian subsidiaries.  Not only did these companies have their own subsidiaries in India, but they also sent a core team of engineers from the US to open the office, train the staff, manage the team, and provide real incentives like stock options.  The portfolio companies that did not fare so well were the ones that had offshore development shops work for them and while the output was fine, it was quite disruptive as the turnover of personnel was quite high.  In the end, all I can say is that offshore development for your company is not a panacea, and that you should only do it if it makes sense for your company (read an earlier post for more). Given that I am quite interested in globalization, I wanted to share with you a few graphs that I saw this week that were pretty impactful for me.  First, I recently discovered this piece that Mike Milken wrote for the Wall Street Journal a couple of days ago.  I found it on Greg Mankiw’s blog, an economics professor at Harvard and also the Chairman of the Council of Economic Advisors (he is also a former Professor of mine).  Share_of_world_outputLike Greg, I want to highlight Michael ‘s thoughts on the graph.
"China and India combined to produce nearly half the world’s economic output in 1820 compared to just 1.8% for the U.S.  Our remarkable growth since 1820 has benefited from democratic institutions, a belief in capitalism, private property rights, an entrepreneurial culture, abundant resources, openness to foreign investment, the best universities, immigration and relatively transparent markets."
In addition, here are two other graphs from this week’s Economist that summarize what the world may look like in the future.  I encourage you to read the in-depth survey as it provides some great historical context as well as trends we should watch in the future. Csu168_1 Tying into Michael Milken’s graph of the world economy in the
Csu054
Continue reading "Globalization and the world economy"

Live homework help for your kids

Congratulations to George Cigale and his Tutor.com (full disclosure – portfolio company and my partner Dan DeWolf is on the board) team for the launch of their direct-to consumer service which offers live homework help and online tutoring.  This is the culmination of a mission that George set out to realize over 8 years ago.  What is most impressive to me is that while George’s initial focus when he launched the service in 2000 was to go after the consumer market, he quickly recognized that consumers did not have the bandwidth (5% broadband penetration vs. 45% today) and the comfort level to purchase online tutoring sessions.  So like any smart entrepreneur, George did an analysis and went to the where the money was, providing a service to state and local libraries to offer to their constituency. George’s patience and foresight helped Tutor.com weather the nuclear storm and build a real business behind the scenes.  Of course, timing is everything and George and his team have been waiting for the right time (TODAY) to offer a direct-to-consumer service which provides live homework help for students.  As George says:
You may know that over the past five years, we have focused on working with libraries across the nation to help kids connect with a real live tutor for one-to-one help.  We’ll serve over 1 million students this year through our Live Homework Help programs in over 1,500 libraries in 40+ states, and we will continue working closely with libraries as we expand our offerings.  94% of students say they got the help they needed and would recommend the service to a friend, and lots of great news coverage about those programs at Tutor’s Press Page. Today we launched Tutor.com Direct (the right side of Tutor.com).  Students and parents everywhere can now get live one-to-one help from expert tutors at the moment a child needs help. No more waiting for your tutoring session next week or driving your child to a tutoring center.  Tutor.com Direct allows a child to get the help they need every day, before small difficulties turn into significant learning problems. I hope you’ll try it, have your kids try it, and share it with friends and colleagues.  You can use the code "GCLAUNCH1" to get your first two hours for $5.  Plus a third hour free if you call us at 800-411-1970 and give us your feedback after trying the service.
Hidden in this promotion for you to try this service are some nuggets of wisdom, the most important of which is that as a startup you must be flexible, flexible enough to Continue reading "Live homework help for your kids"

Getting too big too fast

I encourage you to read what Evan Williams has to say (courtesy of Gigaom) about some of the mistakes he made at Odeo.  Evan is one of the founders of Blogger which he sold to Google and is also founder and CEO of Odeo, a podcasting company.  He goes on to outline a number of mistakes that he has made as an entrepreneur such as not understanding who his customer was and wanted, starting off with too broad a market focus, and raising too much money too fast.  It takes alot of guts to publicly tell the world that you screwed up and how you screwed up.  More importantly, it seems that Evan has narrowed the company’s focus and cut down some excess management to rightsize his business.  As I have mentioned in a previous post, having too much money can be a curse and not a blessing.  If you don’t know who your customer is and what your customer wants and how you uniquely deliver that, no amount of money will help you answer those questions.  As you know, the more money you raise, the bigger the expectations are for your business.  If you raise too much too soon, you may feel extremely pressured to go big and broad too fast without really getting the basics down first.  I am sure Evan is not the only CEO to have felt this pressure to run fast, even if he didn’t ultimately know in which direction he was going.  My only advice is that in the early days as your are experimenting and understanding your market and customer base, a smaller first round of capital may be a better bet for you as it forces you and your team to be resourceful and focused while better aligning investor expectations. The post Getting too big too fast appeared first on BeyondVC.

Podcast with Heather Green of Businessweek

I recently had the opportunity to do a podcast with Heather Green of BusinessWeek and Blogspotting.  If you have a desire to hear about some of the areas I find interesting and to learn about pitfalls to avoid for startups, I suggest that you download the show.  My only regret is that we did not get to use Gizmo Project, one of my portfolio companies, to do the podcast.  After all, isn’t important for VCs and entrepreneurs to eat their own dog food? The post Podcast with Heather Green of Businessweek appeared first on BeyondVC.

Add Startup Review to your blogroll

Nisan Gabbay of Sierra Ventures recently contacted me with respect to his new blog, Startup Review.  According to Nisan:
Startup Review will be a blog that profiles successful Internet start-ups in a case study format. The case studies will analyze the key factors that made the companies successful, with an emphasis on strategy and product decisions. Each case study will also have sections discussing launch strategy, exit analysis, and links to other good analysis on the company.

I don’t think that there is a good forum where people can discuss what made certain companies successful, particularly the less publicized success stories. Sure there are whole books written on companies like Google and eBay, but what about the more modest success stories in the $10M – $2B range? My goal is to highlight lessons learned from companies like Rent.com, HotorNot.com, or Greenfield Online.

I took a look at his site and he has some great posts on companies like MySpace.  If you are interested in going more in-depth to understand how certain companies got off the ground and made it, I suggest subscribing to his site.  As for my two cents, it would also be interesting for Nisan to dive deeper into some more high profile failures in the market so others can understand the many things that can go wrong in a business.  I have found that digging into your failures and doing a post mortem on why your company lost a sale or a customer, partner, or employee can be more illuminating than just understanding why you succeed. The post Add Startup Review to your blogroll appeared first on BeyondVC.

Take care of the little things

As an entrepreneur, you are most likely spending most of your time building your product and getting it to market.  in other words, you are focusing on the big picture which is what you should be doing.  I do want to share with you a couple of anecdotes about not forgetting to take care of the little things – little things like keeping proper files and records.  It is quite simple to overlook this aspect of your business but taking care of your company and keeping your house in order is easy to do, especially if you start from Day 1.  Make sure your basic finances are in order and that all customer contracts, employment-related documents, financing paperwork, etc. is all stored properly and securely.  Sure we have electronic copies of many of these items but real signatures are quite important. 
  1. Example #1: Your company is about to be sold and as the acquirer is doing due diligence it wants to make sure that there are no outstanding claims to the intellectual property of your company.  In other words, the acquirer does not want to have an ex-employee or founder come after them once the transaction is completed.  Well, this is easy to take care of, right?  Typically most companies have their employees and particularly technical personnel sign an assignment of inventions and confidentiality contract where any product or patent developed while working for your company is owned by the company.  So in order to satisfy the acquirer’s needs, all your company has to do is find the signed documents for the key technical founders.  Well, guess what – if you didn’t keep proper records and don’t have the signature, there are two options – the acquirer may walk or you have to go back and get another signature from an ex-employee.  Good luck with that.
  2. You are about to sell your company.  5 years ago, you and a technical co-founder conceived of the idea and launched the service.  However, your technical co-founder decided to work full-time at another company and ended up just consulting with your startup post-funding.  While this person may have signed an assignment of inventions agreement with you, he also signed one with his current employer.  When you closed your first round of funding years ago, the lead investor did his diligence and found out that the technical co-founder’s existing employer may have a right or may even own the startup’s technology.  After much debate, you secure a release from the technical co-founder’s company stating that they have no claims to the technology.  Fast forward 5 years – Continue reading "Take care of the little things"

Facebook and product development

While reading the Wall Street Journal this morning, the Facebook story caught my eye.  Facebook has clearly built a huge community and is one of the leading social networks on the web.  However, I was mystified about the backlash the company received about its new service allowing users to better keep track of their friends and what they are doing.  On the surface it seems like the company was trying to make it easier for their users to keep track of their friends’ whereabouts and online activities.  However, it seems that there is a huge privacy backlash online (according to USA Today already 500k of 9.5mm members are against this) – I guess part of the lure of the Facebook that it was more of a closed network than MySpace.  All that being said, I am mystified because I wonder what level of customer feedback the company solicited in rolling out its new service.  Sure, the larger your audience is, the harder it is to make everyone happy.  In addition, there are many factors that go into the release of a new product that includes fixing bugs, soliciting customer feedback, responding to competition, and adding new features that will maintain a company’s technological lead in the market.  According to the Wall Street Journal article today:

Ms. Deitch said Facebook’s feedback from users comes in the form of emails to its customer-service email address, which the company’s product-development team reviews weekly. But the company typically doesn’t solicit feedback by showing features to users before launching them.

Facebook held an emergency meeting yesterday to plan its response to the backlash. Ms. Deitch said that the new features are "here to stay" but that staffers are discussing possible tweaks to appease users. She wouldn’t say what those changes might be.

While you cannot solely develop based on what existing customers want because you may miss the next big opportunity, I thought the benefit of web-based software was that you could test and tweak very easily.  If what Facebook’s spokesperson says is true ("But the company typically doesn’t solicit feedback by showing features to users before launching them"), I would suggest that they build some new release practices to maybe roll out a new feature to a subset of the population and gather feedback before having to deal with this maelstrom of negative publicity.  Isn’t that what a lot of the best web-based businesses already do?  To be fair, Mark Zuckerberg has responded admirably and promptly to his community.  However, he could have avoided this all in the first place if he tested the implementation of the new features with Continue reading “Facebook and product development”

Facebook and product development

While reading the Wall Street Journal this morning, the Facebook story caught my eye.  Facebook has clearly built a huge community and is one of the leading social networks on the web.  However, I was mystified about the backlash the company received about its new service allowing users to better keep track of their friends and what they are doing.  On the surface it seems like the company was trying to make it easier for their users to keep track of their friends’ whereabouts and online activities.  However, it seems that there is a huge privacy backlash online (according to USA Today already 500k of 9.5mm members are against this) – I guess part of the lure of the Facebook that it was more of a closed network than MySpace.  All that being said, I am mystified because I wonder what level of customer feedback the company solicited in rolling out its new service.  Sure, the larger your audience is, the harder it is to make everyone happy.  In addition, there are many factors that go into the release of a new product that includes fixing bugs, soliciting customer feedback, responding to competition, and adding new features that will maintain a company’s technological lead in the market.  According to the Wall Street Journal article today:
Ms. Deitch said Facebook’s feedback from users comes in the form of emails to its customer-service email address, which the company’s product-development team reviews weekly. But the company typically doesn’t solicit feedback by showing features to users before launching them.

Facebook held an emergency meeting yesterday to plan its response to the backlash. Ms. Deitch said that the new features are "here to stay" but that staffers are discussing possible tweaks to appease users. She wouldn’t say what those changes might be.

While you cannot solely develop based on what existing customers want because you may miss the next big opportunity, I thought the benefit of web-based software was that you could test and tweak very easily.  If what Facebook’s spokesperson says is true ("But the company typically doesn’t solicit feedback by showing features to users before launching them"), I would suggest that they build some new release practices to maybe roll out a new feature to a subset of the population and gather feedback before having to deal with this maelstrom of negative publicity.  Isn’t that what a lot of the best web-based businesses already do?  To be fair, Mark Zuckerberg has responded admirably and promptly to his community.  However, he could have avoided this all in the first place if he tested the implementation of the new features with Continue reading "Facebook and product development"

Hiring great talent (continued)

As you know, talent is the lifeblood of any company.  Given that, I have written a number of posts on hiring (see here and here).  I recently saw Joel Sposky’s (Joel on Software) post on hiring great developers and thought that I would share it with you.  He makes a number of great points and I have extracted a few pearls of wisdom for you:
  1. "The great software developers, indeed, the best people in every field, are quite simply never on the market."
  2. "Numerically, great people are pretty rare, and they’re never on the job market, while incompetent people, even though they are just as rare, apply to thousands of jobs throughout their career."
Like any important process, hiring great people means that you and your company need to make it a priority and stay incredibly focused.  In fact, hiring great people reminds me alot of finding great deals as a VC.  At the end of the day, being proactive is key and leveraging your network to generate targeted and filtered deals or resumes will always create a higher yield than sitting back and waiting for the masses to come to you. The post Hiring great talent (continued) appeared first on BeyondVC.

Google and enterprise SAAS

There has been lots of discussion about Google going after Microsoft with a focus on collaborative office tools vs. siloed, desktop-oriented ones.  I can definitely see a need for some of what Google has to offer particularly with the ease of use of unlocking data and analysis and sharing it with others.  All that being said, I have a hard time viewing their offering as a replacement for Microsoft office.  What I have always thought, however, is what Charlie Wood mentioned in his blog – that a partnership between Google and Salesforce.com could make sense .  For more background, I suggest reading a recent Red Herring article and one of my posts from Oct 2004 about goffice and specifically about a Google/Salesforce partnership.  My thinking has evolved over the last two years and while there may or may not be a partnership, I certainly envision a time in the future where Google offers an even lower end offering -think free, ad-supported hosted CRM and other simple ERP related apps for the SMB market.  This would allow Google to leverage its strength – online distribution and a huge user community.  Of course, customers and users will have to get over the data privacy issue but free and easy can be quite compelling.  In addition as more users sign up, I could see Google offering APIs so that its own users could build custom templates for certain verticals ala Salesforce’s community approach.  As the widgetization of the web happens, think how easy it could be for a SMB to have a hosted web portal that is password protected and a number of widgets like a sales pipeline, presence and one click communication for the employees, and certain financials embedded in the page with a few simple clicks.  All of the enterprise portal infrastructure like Epicentric that used to cost boatloads of money and take months to integrate can now be used by many a SMB as we move towards a one-click world.  I am not saying that free and ad-supported SAAS apps will take over the world but Google will eventually do it and it will be interesting to see how the market reacts to it.  Ok-enough said on that. The post Google and enterprise SAAS appeared first on BeyondVC.

Citrix Online – a SAAS powerhouse

Everyone knows that hindsight is 20/20.  Back in 2003 when we were deciding whether or not to sell Expertcity (GoToMyPC and GoToMeeting) to Citrix or continue fighting the fight and attempt to take the company public 1 year later, it was quite a gut-wrenching decision.  Ultimately we decided that the risk/reward ratio to sell at that time was better than going for the public offering.  As it turns out, we all did quite well and it is great to see that a few years later that Expertcity (now known as Citrix Online) is continuing to drive the numbers that we believed we could do.  When most people think of the poster children of SAAS, they think of Salesforce.com, WebX, and RIghtNow.  As Phil Wainewright of ZDNet mentions in his blog, let’s not forget about the powerhouse that is now Citrix Online.  According to Phil Wainewright:
Acquired as Expertcity in February 2004, the Citrix Online division is an on-demand giant in its own right, with trailing twelve month (TTM) revenues of $121.6 million to June 30th this year. That makes it even bigger than the number 2 on-demand CRM vendor RightNow Technologies, which reported a TTM of $99.3 million for the same period, and more than a third the size of web conferencing leader WebEx, with a TTM of $343.7 million (for comparison, on-demand poster child salesforce.com posted $396.6 million TTM with its latest results).
Even more impressive is the fact that the company grew from $35mm in revenue from the end of 2003 to around $121mm in revenue 3 years later – not too shabby for an on-demand play going after the SMB market.  In addition, at the time of the sale, the company had raised around $30mm in financing but still had $16mm on the balance sheet when the transaction was completed.  So it is hard to argue that the SAAS model if done right can be capital efficient and offer tremendous growth opportunities.  In my mind, there are two ways to look at SAAS offerings – vertical market applications or horizontal plays.  Of course the challenge is that many vertical market app plays may not be big enough and the horizontal plays have probably been done already and are quite competitive.  All that being said, I am still quite interested in looking at companies offering a SAAS platform for Prosumers and SMBs.  If you have any of these types of companies that you want to show me, I am all ears.  I love the model and numbers like this show that the SMB market is really ready for Continue reading "Citrix Online – a SAAS powerhouse"

TechCrunch 7

I atternded the Techcrunch 7 party on Friday. Mike – great party! Here is the video I made: Lots of discussion here

Why cash is king

Oftentimes I am asked what my plan for exit is when I invest in a company.  Sure I have a plan when I invest, but it is impossible to predict the future.  The best plan in my mind is to make sure that any company we invest in has a tremendous market opportunity with a real business model and high operating margins that can eventually generate real cash flow.  As an entrepreneur, it is important to invest for the long term and not make short term decisions because you think you will be acquired (see an earlier post – Companies are bought and not sold).  Ultimately what will give you the best chance for success is focusing on the things that you can control – building a real business with a real economic model that can generate cash from internal operations vs. through external financing.  Yes, this is easier said than done, but when this happens you can do things like Bob Parsons, CEO of GoDaddy, recently did (via Techmeme)- pull his IPO.  As he discusses in his blog post:
Why I decided to pull our IPO filing.
You might ask, why, if Go Daddy’s situation has never been better, did I decide to pull our IPO filing? There are three reasons for doing so: 1. Market conditions
2. The Quiet Period
3. We don’t have to go public Market Conditions.
The state of the stock market for an IPO is as uncertain as it could be. In fact, the USA Today published an article that IPO stands for “Investor Pain Overload.”   This is due, in large part, to the overall "bearishness" in the market. Consider the situation from a global perspective and follow it all the way to Wall Street.
We have war and escalating hostilities throughout the Middle East, with no end in sight. Oil prices are skyrocketing. Tech stocks, in particular, are once again taking a beating on Wall Street, due in part to some investment banks cutting their ratings on the U.S. technology sector. Rising interest rates have played a key factor. Their steady rise over recent months has put adverse pressure on stocks overall. In a bit of irony, last week when the SEC informed us our filing was accepted as being ready-to-go, market conditions were a terrible mess. In fact, inflation worries, say analysts, are bleeding into the tech sector. For all these reasons, I liken the timing of us getting the ‘green light’ to a person being told his car is in perfect condition just before it’s about to be driven into a wall. I don’t expect market conditions to Continue reading "Why cash is king"

The myth of the Rock Star CEO

Attraction to fame is part of our culture.  There are dozens of magazines, tv shows, and websites devoted too all things celebrity.  This attraction to fame also extends to the business and tech world as well – bringing a household name to your company can instantly elevate the perceived status of your business.  All that being said, I personally have a serious problem when anything related to fame creeps into personnel decisions for an early stage company.  Too often, when doing a search for a CEO, I have heard the term "rock star" thrown about from many a venture capitalist and entrepreneur.  I need a "rock star" CEO that can take us to the next level and bring instant credibility to my company.  Trust me, I am all for bringing in a "rock star" executive to run a business but in my mind it all comes down to what one’s definition of a "rock star" is.  Is your "rock star" a big name and cover boy on a magazine, key note speaker at many a conference, and a person who happened to catch the Internet wave at the right time and translated that into tremendous financial success?  Or is your "rock star" someone that is appropriate for your business, meets all of the job specs in your CEO target profile, possesses leadership skills and experience working at large and small companies helping launch new products into new markets successfully, and has the hunger and passion to work at your company.? If that candidate happens to meet both definitions of "rock star", then you are in great shape.  However, if you are making a decision more because of the candidate’s big name than you better think twice.  I am not going to go into a full dialogue on the hiring process but I suggest seeing an earlier post where I discuss that coming up with the job specification or target profile is one of the most important things to do before emabarking on any search.  Once again, the point I am making here is to not make a hiring decision just on the name of a person but to do it for all of the right reasons.  A friend in LA once told me that one of the keys to success in his business was to not get starfu**ed. I suggest the same when it comes to hiring your next CEO or key executive.  You are probably better off hiring the CEO who has lots to prove and who is going to be the next "rock star" than one who already is. The post The myth of the Rock Star CEO appeared first on BeyondVC.

How long is the Long Tail?

We all know about the groundbreaking work from Chris Anderson from Wired about the Long Tail. In theory it makes a ton of sense – on the web, companies have no inventory costs and can stock as many titles or products as possible and that over time the one-offs or misses can generate as much or more sales than the hits.  As you can imagine, this Long Tail meme gets mentioned by many an entrepreneur that I meet and saying "we are going after the long tail of X" is almost as popular as saying "I’m a Web 2.0 company."  I have not read the book or the data, but as I said, in theory it sounds great.  You could even extend this long tail concept to user generated content.  For example, YouTube could be like the long tail of video – people get to see new content which would never sell at any traditional bricks and mortars store and YouTube has the opportunity to make money off all of this Long Tail content. As for the Long Tail, the only question one can ask is when will it happen vs. if it makes sense or not.  In today’s Wall Street Journal, Lee Gomes (see his article here – sorry, requires login) challenges the timing of the Long Tail and comes up with some interesting data.
"By Mr. Anderson’s calculation, 25% of Amazon’s sales are from it’s tail, as they involve books you can’t find at a traditional retailer.  But using another analysis of those numbers – an analysis that Mr. Anderson argues isn’t meaningful – you can show that 2.7% of Amazon’s titles produce a whopping 75% of its revenues.  Not quite as impressive. Another theme of the book is that "hits are starting to rule less."  But when I looked online, I was surprised to see what seemed like the opposite.  Ecast says 10% of its songs account for roughly 90% of its streams; monthly data from Rhapsody showed the top 10% songs getting 86% of streams."
Lee has a few other examples and one of the most interesting ones is when he states that when Chris looked at the data 2 years ago for eCast that 2% of songs did not play every quarter and now with a much larger inventory that number has risen to 12%.  Maybe eCast just had the hits up in the first place?  In short, Lee Gomes concludes that the Long Tail may be true but it will also take a long time before it happens. From my perspective, I do believe we still live in a Continue reading "How long is the Long Tail?"

I hate shitty software – webroot spysweeper v5

Having invested in a couple of security companies, I am pretty adamant about security when it comes to my personal computers.  Until now, I have been using Norton Antivirus, ZoneLabs ZoneAlarm Security Suite, and Webroot’s SpySweeper.  Things were going great until a few days ago when I upgraded my Webroot Spysweeper from v4.5.9 to v5 and then all hell broke loose.  My computer kept freezing on the simplest task such as opening a browser and after several diagnostics I realized it was Spysweeper.  After uninstalling it, I still had problems so I am now in the process of rebuilding my machine.  After doing a Google search, I recognize that I am not the only one with a problem as you can see here. For the life of me, I don’t understand how a great product went to shit with just one release.  Maybe it was the fact that they raised $100mm or so of venture capital and feel the heat to grow and expand quickly.  As you might notice, every security player that locks down the home PC has evolved into a suite-based approach.  In addition, I see that Webroot also expanded to the enterprise as well.  All I can say, is that any company looking to expand and grow should not forget what got them there – in Webroot’s case it is great antispyware software for the individual consumer. Webroot may also want to do a better job of QA before releasing its product to the market.  Given all of these issues, I am done with Webroot and moving on to another anti-spyware program. The post I hate shitty software – webroot spysweeper v5 appeared first on BeyondVC.

Reliving the bubble

Fred Wilson has a great post on remembering the old wounds from the last bubble in 2000.  In particular, he highlights the question that many of us have asked at board meetings – are we being too conservative or is it time to step on the gas a little.  This is a vibrant area for discusssion – we never know the real answer as hindsight is 20/20 but it reminds me of a post I wrote back in March 2004 called Thoughts from PC Forum – going into attack mode.  Here is a little excerpt:
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 their customer is, how much they will pay, and what features and functionalities they may want in future versions. While it may sound like idle VC talk, I encourage you to spend that extra $$$ now as long as you can see the real ROI behind a targeted marketing program, the hiring of a new engineer to finish a product faster, or a new sales person to manage more qualified leads. Once again, take it with a grain of salt, as some entrepreneurs may think this is another VC swinging for the fences, but the point is don’t be too cautious because the opportunity may just pass you by.
Trust me, having lived through the bubble has changed my mentality a ton but I always have to remember that there is that lingering fear in my mind (fear can be good), and that I also have to temper my psychological mindframe with the data we have at hand and the opportunity in front of us. In other words, have a strategy and stick to it and if anything remember that old wounds can haunt you and use the data at hand to help make your decision.  If the ROI Continue reading "Reliving the bubble"

Free phone calls!

Sipphone (full disclosure-my fund is an investor and I am on the board), developers of Gizmo Project, made a bold move yesterday offering users free calls to mobile and landlines in over 60 countries.  It is akin to the old MCI Friends and Family plan where customers could call other MCI customers for free.  This is viral marketing at its best.  Similarly, in order to take advantage of our offer, any Gizmo Project user can call any other registered Gizmo Project friend on any phone line in the 60 countries offered.  As Jim Courtney from Skype Journal says in his post:
The genius in this program is the attempt to drive market awareness virally by getting all your (PC- and headset-equipped) friends and family to sign up for GizmoProject and experiment with it. You then have the option of calling them at no charge; they can receive the call on either the GizmoProject softphone or their legacy PSTN phones.
There is lots of buzz in the blogosphere about this plan – some calling it great and others calling it a marketing gimmick.  Yes the free calls require both users to be registered to Gizmo Project but whether you call it a gimmick or not, I can already see some dramatic user signups in the last few days.  Michael Arrington from TechCrunch gets it when he says:
If calls continue moving towards free, then it’s going to be all about the value-added features. Video, better conferencing support, SMS – I can only imagine what sorts of features VOIP providers will be able to find substantial profit in. Perhaps these consumer VOIP services will have to make consumer VOIP a loss leader in exchange for building the strength of enterprise VOIP offerings. Ad supported free calls could be acceptable if the ads appear on the web interface. It’s hard to say what could take the place of burning through VOIP-out minutes, but interesting things will likely emerge.
As I have always thought, the price of phone calls has nowhere to do but down (and it has been dropping substantially over the last 5 years) and Gizmo Project is making a big move with its "free" offering.  As you might assume, the key to making our business model successful is the upsell of value added services and to continue to make sure we acquire new subscribers at the lowest cost possible.  From my perspective it all goes in the marketing bucket – would you rather spend money on silly television ads or pass on the low cost of telephony to your customers?   As Jason Droege, President of Sipphone told Om Malik,
“Wholesale Continue reading "Free phone calls!"

Software & Information Industry Association survey

It is always helpful to get benchmark data on your competitors and on other companies that have a similar business model.  To that end, I encourage you to sign up for the SIIA Financial Survey to see how you stack up against your competitors. 
We encourage you to invite your software industry portfolio companies to participate in the SIIA Software Industry Financial Survey, conducted with assistance from Deloitte & Touche LLP and its affiliates. The report from this survey will provide in-depth analyses on nearly 100 financial statement and productivity ratios — detail far beyond that available in annual reports or SEC filings. These include R&D, sales and marketing, legal, revenue per employee and inventory turnover, among others. Results will be shown by sales volume, market segment, ownership, profitability and other measures, allowing you to make appropriate peer comparisons.
I am sure this will be a worthwhile endeavor for you.  When I meet an entrepreneur I always like to ask who they want to be when they grow up and why?  In other words, I like to know what company out there today has a business model that you would like to emulate.  While I do not pin my valuation for an early stage company on the financial model, it is important to have one to understand your costs or cash needs and to understand whether or not you have a viable business model with high gross margins or low gross margins.  For example, if you are another social networking company that walks in my door wanting to be the next MySpace then you better understand that the only way to make that model work financially is to have a huge audience generating tons of page views since the monetization rates on each page view are so low relative to paid search as an example.  If you are  selling infrastructure software and you model out in 3 years that you will be more profitable than every other company out there, I am sure you are missing something as well. The post Software & Information Industry Association survey appeared first on BeyondVC.

VOIP and IM World Update

Congrats to the Sipphone team (full disclosure-portfolio company and I am on board) for getting the Gizmo Project client out for the Nokia Internet 770 Tablet (see Andy Abramson’s blog for more on this).  Nokiascreen This is quite exciting as the company is executing on its vision and roadmap to extend its SIP and IM service to many devices and networks, particularly wireless ones.  Our other vision was to focus on standards-based interoperability for IM and VOIP.  To that end, the Gizmo Project 2.0 release allows users to have dual log-in from one soft client to either Asterix based PBXs or other SIP-based networks.  On the IM side, it seems that the world is slowly moving into the interoperability direction as Yahoo and Microsoft are in limited testing for federation of their respective networks and as LiveJournal added XMPP/Jabber based-IM to its network of 10 million users.  As Om points out, it will be interesting to see how federation in the IM and VOIP space continue.  As I have mentioned in the past, most of the number 1 players have no reason to federate, but I do believe as a number of smaller communities and networks spring to life, that the little guys will be able to federate and create a standards-based IM and VOIP service that rivals the larger players.  Doesn’t open standards win eventually?

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