There has been lots of discussion about the web as the new platform so none of what I am saying is new. However, I recently came across Adam Bosworth’s take
on this which is quite interesting given his experience at Microsoft, BEA, and now Google.
The platform of this decade isn’t going to be around controlling hardware resources and rich UI. Nor do I think you’re going to be able to charge for the platform per se. Instead, it is going to be around access to community, collaboration, and content. And it is going to be mass market in the way that the web is mass market, in the way that the iPod is mass market, in the way that a TV is mass market. Which means I think that it is going to be around services, not around boxes. I postulate, still, that 95% of the UI required for this world will be delivered over the browser for the same reason that we all still use a steering wheel in a car or have stayed with << < | > >> for so long. Everybody gets it. But this will, by definition, be an open platform because the main value it has is in delivering information and communication. Notice that the big players, Amazon, eBay, and Google have already opened up their information through Web API’s. It is Open Data coupled with Open Communication built on top of Open Source that will drive the future, not Longhorn.
The Microsoft/Google wars will be a great one to watch over the years. I, for one, being a big fan of the ASP and hosted software model, like the browser based-platform. It makes so much sense and will continue to do so as we get even more bandwidth and more devices from which to access web-based services. As GBrowser rolls out, I wonder how long it will be before Google, leveraging open source, rolls out GOffice and GCollaboration (web-ex like functionality) to really go after Microsoft. Maybe Salesforce.com and Google get together at some point in the distant, distant future?
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I had the opportunity to spend a few hours today at an Intel Capital event for their portfolio companies and VC friends. While a great way to network with fellow investors and meet new companies, I particularly enjoyed a talk given by Chris Thomas, Intel’s EStrategist, on the future of software in the enterprise. While none of the ideas were new, I liked how he laid out the major themes in computing and software in a well-thought out presentation.
Here are some of my notes from that discussion.
Chris’ view is that we are moving towards a service-oriented world, where enterprises can tap applications and resources on demand and on the fly. Yes, we have heard this theme over the last few years in a number of different incarnations. In fact, I got a chuckle from Chris’ list of marketing slogans from all of the large vendors trying to trademark their specific vision on the service-oriented world (N1, on-demand, etc.). Anyway, despite the hype of SOA (service-oriented architectures), it is beginning to happen, it is real, and it is still early. As we move into this world of SOAs, there will be tremendous opportunities for software investment as enterprises consolidate, modularlize, and virtualize their data centers. Chris highlighted the 5 buckets or themes that mattered to him:
- Software and data delivered as services
-think ASP model, think modular, software components that perform a specific task, which can be used as building blocks and combined with other components via web services to solve a specific business problem
-this will be the new way to build software and go-to-market
-he gave an example of how AT&T used a combination of hosted software vendors and their APIs to deliver an order routing solution for a customer in 2 weeks instead of 9-12 months
-a side note – as we move into an increasingly global world, no need to worry about software piracy since you can’t steal a service but you can steal sofware
Hardware as a virtualized resource
-view hardware as one set of services
-manage capacity on demand
-new hardware=new software opportunity
Autonomic data sources (RFID, tags, smart sensors)
-Chris gave an estimate that an average retail store could have up to a terabyte of data from RFID alone
-think about the opportunities here to process, filter, store, and understand all of this data
-how will all of this data flow through the network in an optimal way?
-once again, more investment opportunities in software
Occasionally connected usage (Intel’s mobile theme)
-performance of offline and occassionally connected usage much better than always-on
-opportunities include power, performance, software that works online and offline (go to back to theme Continue reading "Opportunties for Enterprise Software Investments"
Jeff Nolan has a comprehensive post
on choosing your VC. I totally agree with Jeff’s view that not only should entrepreneurs do their diligence when choosing a VC to invest in their company, but VCs should also do reference checks on their new partners. This includes understanding potential board dynamics and making sure investor interests are aligned. Put it this way, a bad board with bad dynamics rife with egos and competing interests can bring a company down quickly. Some areas to explore include understanding the size of fund, the amount of dry powder, the appetite for risk, the view on the existing business plan, team, and management gaps to fill. As an example, a smaller fund with less dry powder may want to grow less agressively than a larger fund with more capital to invest. Not that the situation above can’t work, but it is incumbent upon the entrepreneur and existing VC to understand the potential areas for conflict and make sure they get comfortable with them. This means that the entrepreneur and existing investor should spend the appropriate time to get to know their potential partner (if they do not already know them) in addition to doing the right reference checks (see Jeff’s post
for areas to dig).
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During the Internet boom, all eyes were on the United States as we were the first to leverage this new medium and create some amazing companies and uses of the Internet from ecommerce to search to online dating. Many of these companies did not know how they were going to make money except that they would figure it out. Over time the business models evolved, some became profitable and some simply went away. Entrepreneurs in Europe and Asia were able to learn from our successes and failures to launch their own modified clones of many US web companies. Today, the tables have turned. When I think about our broadband and wireless future, we in the US can look overseas for models that work and fail. Europe and Asia are clearly ahead of us in terms of deploying 3G and real broadband pipes to the home. As I think about how wireless and broadband will change how we live and the applications that will drive thoses changes, I would be foolish not to dive deeply into how it has impacted countries like Korea, for example. Peter Lewis of Fortune has a great article
(unfortunately password required) in this past week’s edition outlining the impact that wireless and broadband has had on the country. A quote in Peter’s article from Hung Song can really open your eyes to the possibilities of broadband.
Hung Song, vice president of business development at Samsung, takes his broadband with him wherever he goes. On the drive home from work at 9 or 10 p.m., says Song, a tall, thin in-line-skating enthusiast, he uses the phone to check traffic. Because phone carriers can track the location of his third-generation (3G) phone to within a few meters, he has access to a location-based service that monitors real-time road reports and displays alternative routes around traffic jams. (The system also lets him call up a map showing the location of his children, who carry location-based mobile phones too.) If Song gets stuck in traffic anyway, he can always use the handset to watch television news, or go over his next day’s appointments, or download music (Koreans spend more on downloaded music than they do on audio CDs). More likely, though, he’ll do his banking or log on to his computer at the office to check e-mail. As Song drives his Renault Samsung sedan across the Yeongdong bridge, over the broad Hangang River that bisects Seoul, his phone buzzes as nearby restaurants automatically send text messages offering discounts to tempt him to dinner. Some restaurants even let him pay his tab by beaming a code from his handset to a scanner and punching in a PIN number.
Continue reading "Our broadband future"
Board meetings can be a gigantic waste of time if not run appropriately. On the flipside, they can be a valuable source of input and guidance for a management team in the pursuit of maximizing shareholder value. While there are a number of different ways to approach and run a board meeting, I thought I would outline a few of my philosophies on them, and what I expect from my portfolio companies in terms of content.
- Be prepared: Board meetings are like theater. Like any play, I expect the CEO to have a well thought out and scripted agenda for the meeting. The most efficient way to do so is to lay out an agenda and get feedback pre-meeting from the other board members to ensure that the board covers appropriate topics and allocates the right amount of time for each one. From an update and preparedness perspective, the CEO should always go into the meeting having a complete understanding of where the various board members stand in terms of any major decisions. There should be no surprises. This means that the CEO should have individual meetings and calls in advance of the board meeting to walk each director through any decisions that need to be made and the accompanying analyses behind them.
As far as board packages are concerned, I typically like to receive them at least 48 hours in advance so I can process the information and be in a position to ask intelligent questions.
- Timing: For an early stage company, I typically like to meet in person every 4-6 weeks. Lately I have been skewing to more of a 6 week time horizon. I believe that timeframe gives the team enough time to execute on some of the goals outlined in the meeting and not spend their time constantly doing powerpoints for the board.
Content: As much time as possible should be spent on discussion, rather than update. What I want to know about is the management team’s priorities and why, how they are tracking against those goals, and what keeps them up at night with respect to meeting their objectives. What I do not want is a litany of presentations and tech demos with no discussion. At board meetings we should continually evaluate and monitor the company’s strategic goals, understand where the market is and how we are positioned vis a vis our competitors, and discuss management’s plans, priorities, and performance.
While there is no right way to run a meeting, having a framework can be a great way to lead organized and informed discussions. A good framework that I like to use is having the CEO give a high level company overview Continue reading "Running an efficient board meeting"
Whether you know it or not, this seems to be the way that alot of early stage companies make strategic and tactical decisions. People run around the halls and manage by crisis, moving from one deal or issue to the next without any overarching goals and process in place. Solving this not only requires better planning but also staying disciplined, holding you and your team accountable, and executing on those goals. Trust me, this is top of mind for me as this is the time of year that many companies start formulating their plans and goals for 2005. We have all been through a number of these so-called planning sessions and have come out with great plans and ideas, but the problem most of the time is that the execution of it never happens. Hopefully, some of my thoughts and suggestions below will help you simplify this process and create a framework to measure, manage, and execute.
So let me first start with accountability. Without accountability, it is hard to manage a business. What I typically like to see is a management team put together a few simple company goals, say 3-5, which are easy to remember and that can be measured by Yes/No answers. If you have too many goals or if you cannot measure them, then you cannot manage them. With simple Yes/No goals there should never be any ambiguity about completion. Those goals are usually then rolled out by department (3-5 goals that help the company realize its overall goals) so that marketing, sales, and engineering can be in synch with the company goals and so they can be easily monitored and measured by the executive team and board. Obviously you must be flexible and make course corrections through the quarter and year, but this process helps the executives all get on the same page and drive the company in the right direction. If you don’t have knock down, drag out fights over the company goals and the appropriate allocation of resources to realize them, then you are probably not challenging each other enough. Once the goals are set and agreed on, you must communicate and share them with the whole company.
By way of example, an overall goal could be to ship version 4.0. It is a pretty simple Yes or No proposition. Obviously when you roll it down to marketing and development, each department will have its own priorities to make the shipment of version 4.0 a reality. Whenever a new issue or opportunity arises your team can always ask themselves whether or not doing X can help them realize the goal. If not, then it is probably not worth doing. Yes, you Continue reading "Ready-Fire-Aim"
Normally I do not read too much into press releases on industry hires but I found this one
interesting on many levels. Intel, a tremendous brand in its own right, hired a marketing executive from Samsung, a Korean company. Most people assume that the US’ competitive advantage over the rest of the world lies in design, innovation, and branding. We can outsource manufacturing and development to countries like China, Korea, and India to create great products at lower prices. However, what we need to understand is that these countries are not just content in producing widgets. They, too, have aspirations in moving up the product food chain to develop their own brands, design their own products, and manufacture them. So for me it was quite ironic to see one of the world’s best brands, Intel, hire the marketing exec from Samsung, where just five years ago it had no brand and was just seen as a low cost producer. What a tremendous job Samsung has done in just a short period of time. As you can see from Samsung’s numbers, it has done an excellent job moving up the food chain, innovating, and creating a brand. This culminated in Intel hiring a Samsung executive. This is just the beginning. In the WSJ today, there was a great front page article
(sub required) on Chinese telecom equipment companies penetrating worldwide markets. Once again, this is another example that the very advantages that the US has in innovation, design, and brand may be threatened in the long term, especially if we do not pay attention.
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Jeff Nolan has an interesting post
about how a US General views blogs as an excellent source for unfiltered information. Jeff goes on to postulate that CEOs could also get unbiased information from their field as well.
In the private sector it’s only a matter of time before CEO’s, at least the better ones, start figuring out that the best way to get the straight scoop on a topic is to drill down to the field by reading the blogs that exist within the company. Of course, this isn’t an entirely efficient process for an executive who probably already has too much on his/her plate, so the opportunity that exists from a tech standpoint is to aggregate blogs and apply BI techniques to sort, categorize, and apply qualitative filters to. I suppose you could make the case that this is what Technorati or Feedster are doing, but I’m not sure that’s what I am envisioning…. I’m going to need to put some more thought into this and report back at a later time.
This is yet another example of how the web is helping make inefficient processes more efficient, especially when we are moving away from a command and control world to one where empowered individuals or nodes on the edge make decisions. In this world, getting unfiltered information from the edge becomes more important. Rather than squelch his troops, it is quite nice to see that General Myers gets it and is embracing blogs as another data point for him. .
The post Getting the real dirt
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I recently had a board meeting for one of my portfolio companies and was upset because during the sales pipeline review we only heard great things about the pipeline, new closed deals, and the possibility of beating our quarter yet again. What bothered me, however, was that we did not spend enough time discussing the big losses or missed opportunities. Evaluating losses is a great leading indicator for health in a business. If you can get to the heart of why you are losing deals early on, you can prevent big problems down the line. More often than not, management teams will do the opposite and revel in their victories and not spend enough time in defeat. Great management teams, however, will learn from their losses and missed opportunities – they will learn what went wrong and why to make sure it never happens again. This is like preventitive medicine – diagnose early before large problems arise. This, in my mind, is an important trait to institutionalize in a company. While hitting your quarter is a great thing, if you never take a proactive stance and do post mortems on lost opportunities, your competition will eventually catch up to you. Talk to the prospect and try to understand whether it was the process, the sales person, the product, pricing or competition. After a few of these data points, you will have a better view of why you lost and what you can do to fix it. I strongly believe that you can learn just as much from your losses as you can from your wins.
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Here is another example of why commoditization is not killing innovation. In fact, it can and has given a number of companies a leg up in terms of developing and deploying new products in record time and at low costs. Using so-called commodity software and hardware actually does not kill innovation but speeds it up.
For example, Metapa
, one of my portfolio companies, has begun shipping a software product (Metapa clustered database) that enables customers to deploy terabyte scale data warehouses on clusters of commodity computers running open source software. To that end, the company just announced
a joint customer win and partnership with Sun.
In the press release, Jeff Mayzurk, VP of technology for E! Networks, says:
“Deploying a unified data warehouse has always been a strategic goal of E!, but with the total cost of ownership associated with traditional solutions, it hasn’t been practical. Metapa and Sun provided a truly unique solution allowing us to implement an enterprise class data warehouse with the price/performance level that makes our initiative possible.”
Dave Powell, CEO of Metapa, goes on to say:
Metapa and Sun are excited to announce E! Networks as a joint customer and a flagship example of how companies can capitalize on the performance advantages and operational returns of open source and commodity computing for data warehousing,” said Dave Powell, president and CEO of Metapa. “CDB leverages commodity computing, open source database technologies and breakthrough parallel processing algorithms to deliver unprecedented price/performance when compared to traditional, proprietary database solutions.”
To reiterate, commodity computing and open source software can enable breakthrough solutions such as what Metapa is delivering with Sun X-86 hardware. My hats off to the team at Metapa for making this happen. In addition, I love having an early customer win that is referenceable and with a partner that can help replicate this win in a big way.
The post Innovation is not dead
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We are truly living in a global world these days. Many startups I meet with today are either taking advantage of offshore development or have pushed up plans to expand sales internationally. Given the broader scope of this trend, I have changed the category name Offshore Resources to represent a broader theme, Globalization. While taking advantage of a global economy is a great idea, it certainly can be disastrous for some companies. You can’t just take your existing blueprint for sales and R&D and adopt it in a foreign country. I mean didn’t we learn our lesson from the world expansion of the British empire? So if you are thinking about expanding globally, I suggest reading Jeff Nolan’s post on making sure you have local market knowledge
. There are a number of great examples and issues that he outlines.
While you may think VCs only want to hear about your company using offshore resources and selling internationally, I am oftentimes underwhelmed by the naivete of some of the entrepreneurs about how and why they are expanding globally. For example, before doing business in other countries, I suggest making sure that you take care of your home market first. The US is a large market, the customers are closer, and the cost of doing business is lower. In fact, if you can have your first customer within driving distance that is ideal. Trust me, customers love knowing that you can show up at a moment’s notice to solve any problem. It is easier to keep a customer happy when you can show up in a half hour than in 24 hours. On the offshore development side, just think through why you are offshoring work and what kind of work you plan on doing in a foreign country. Over time, I have increasingly come to the conclusion that if you are going to do it, make the investment upfront to hire your own team. While the idea of using consultants to get to market quicker sounds attractive, the churn rate is way too high. The time and effort you put forth to train consultants becomes wasted when they jump ship and find a higher paying opportunity.
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One of the recurring themes of dealing with VCs and boards is that we do not like surprises. In addition, tell us the facts, and if there are any negative surprises give us action steps on how you are going to remedy the situation. I have written about the VC/Entrepreneur relationship
before and due to its importance will continue to write about it in this blog. Yesterday was one of those days where these themes kept surfacing in my conversations and email and I thought I would share a couple of examples with you.
In one meeting yesterday a VP of Sales candidate for one of my portfolio companies walked me through one of the biggest lessons learned in his first start-up experience – lay out realistic numbers and hit them. That means that if you do not have 100% confidence that you will hit the quarter, don’t pad your sales pipeline and wait until the end of the quarter to tell us about a potential miss. You are not doing us a favor by letting us feel like we are going to hit the quarter. Tell us as soon as you know – yes, board members can read between the lines as sales is a numbers game. In addition, explain the action steps you will take to solve the problem so it doesn’t happen again. To say the least, he learned alot from that first board experience.
Later in the day, I got an email from another portfolio company’s CEO outlining a potential issue with a key partner. Not only did I like the fact that he communicated with the board right away, but I loved how he included a detailed action plan to resolve the issue. This included securing a meeting with the decision maker ASAP. While all of us were concerned about the news and shared our own thoughts on the action plan, we all felt like we were doing all that we could to overcome the partner’s issues. In the end, I am sure it will work itself out, but it would have been utterly inexcusable if we learned about this after the fact.
Anyway, I hope these stories continue to hammer home the importance of working with your board in an open and collaborative manner. Look, bad things happen, but what gets a VC and board upset is not knowing soon enough, soon enough to potentially take corrective action.
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If you ever wondered what it takes for a startup to succeed, please read the email below sent from the CEO of one of our portfolio companies to his whole staff. Sure, startups don’t have the cash, the people, the distribution channel, and brand to compete with the established players but passion, drive, and an insanely great product can take you a long way.
Dear team members:
I have always believed that the key reason for our continued success over the past few years has been, the contributions made by each and every one of you. Without your sincerity, commitment and hard work, we would not have become the #1 partner for Company X.
I want to share with all of you, an extremely powerful example of sincerity and commitment, shown by one of our fellow team members. I am sure that each one of you will feel proud of him after reading what he accomplished this week!
On Tuesday, July 13th, after finishing a bunch of very successful presentations in the Washington DC Area, John Smith (aka Mad Dog from his army days) took a flight for Memphis, TN where he had to do a presentation in the morning on Wednesday, July 14th. John had to change flights in Atlanta on the way to Memphis. Due to extremely bad weather on the east coast, his flight into Atlanta got delayed and he missed his connecting flight to Memphis. The next available flight to Memphis was the next day at noon, which would cause him to miss his morning presentation. So John asked the airline if they would reimburse him for a rental car to drive from Atlanta to Memphis, thinking that it would be a few hours drive. The airline agreed, so John rented a car and started driving to Memphis from Atlanta. John had been in touch with Dave when all this was going on, so after he started driving, Dave did a quick check on Mapquest and realized that it was a 400 mile, 7 hour drive and not a “few” hours drive as John had thought (it never hurts to be good at Geography!). But Mad Dog did not stop or turn around, he kept driving (with a few coffee breaks to help keep him awake at the driving wheel). He reached Memphis at 5:30 AM, rested for an hour at his hotel and went on to do his presentation – which was very well received. Folks, this story does not end here………..
John then took a flight from Memphis to Jackson, MS where he was scheduled to train 30 users for one of our major customers THROUGH THE NIGHT of Wednesday, July 14th! He Continue reading "How startups succeed"
If I were a startup, one great and cheap way to build buzz and excitement is through the blog community. I call this “influencing the influencers.” Think about it – many of the more well known bloggers are also well known tech journalists, industry pundits, VCs, and technology executives. Forget about using the traditional PR route – if you can get these influencers to write about you on their highly targeted blogs, others will hear about it, write about it, and generate links to it. There has been much discussion about measuring the value of blogs but at the end of the day it is all about being influenced by a trusted source. Each blogger has his own unique audience that trusts his/her opinion. Many of us try and buy products and services based on trust and recommendations. This is no different in the blog community. A number of web 2.0 companies
have already leveraged the blogosphere to generate buzz. Not that I am a big influencer by any stretch of the imagination but some of the new companies I have written about recently include Pluck
, and Onfolio
. And yes, there are many more influential people than I who wrote about these companies as well. I am quite sure all of these posts delivered significant name recognition, brand value, and traffic for the companies mentioned above. Once again, it is not about how many posts, but who posted that really counts because the word and links can spread quickly.
Along those lines, Om Malik is certainly a guy you want on your side. Here is a great post by Om
where he writes about getting quantifiable evidence for the first time on his influence regarding a post on a new startup, Blinkx:
The blog was posted on a Friday, and by the Monday there were 5,000 links to it and people were discussing it all over the world. Since then, there have been 130,000 direct downloads, and many more through users swapping files. This week, the site – which is only launched today – has been recording 6m links or hits a day solely from word-of-mouth publicity.
That is pretty damn cool! Let me repeat – 5,000 links, lots of discussion, 130,000 downloads, and 6m links/hits all generated for $0 – yes, no money!
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Ok, now for some boring accounting stuff. Red Hat (RHAT) recently restated its financials
. Its auditor, PWC, suggested that it change its revenue recognition policy. According to a CBS Marketwatch article
Under the accounting method used in the past, the company would recognize a full month’s revenue from a subscription agreement, even if a deal was sealed in the middle of the month, for example.
The effect of the accounting change is to defer a portion of the revenue that had previously been recorded during the month that the subscription started to the end of the contract.
So what it comes down to is a timing issue. In the example above, a full month of revenue gets recognized even only if the customer signed in the middle of the month. I don’t really think that this in and of itself caused such a huge selloff in the company. One could argue that the company is overvalued at a $2.8 billion market cap and a 20.5 TTM revenue multiple.
Anyway, I checked around with my portfolio companies which sell hosted software and it seems that we are taking a conservative approach by recognizing a set up fee in the month that we sign a deal and do the work and then begin recognizing the subscription revenue the following month. Anyway, while a boring and mundane issue, I believe this will impact a number of other companies in terms of revenue recognition. My general rule of thumb is to always have portfolio companies prepare for success – this also includes making sure our accounting is conservative and inline with best practices.
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If you ever wondered how Sun monetizes Java, I suggest reading Jonathan Schwartz’s (President of Sun) post on commoditization, standards, and Java
. The crux of his discussion is that standardization and commoditization is not terrible as it inevitably opens up new market opportunities for industry players (just look at the railroad industry as an example). On the tech side, Jonathan believes it is mainly bandwidth that has been commoditized as opposed to a broader trend in software.
So I’d like to answer once and for all the question, “how does Sun monetize Java?” with a historical reference: the same way GE and General Motors have monetized standard rails, Vodafone monetizes GSM, banks monetize ATM networks, and oil and gas companies monetize the fact that my car can use “gas.”
The Java community, which we steward, drives a broad array of platform standards, among an even broader array of industry participants. That activity levels a playing field, that just so happens to be the single biggest playing field the technology industry has ever seen. The network is a commodity. We should all be celebrating.
In some respects, one could view commoditization as a bad thing as it is difficult to differentiate one product from another as they are easily replaceable based on price alone. However, what Jonathan is saying and what I agree with is that it is what you do with the commodity bandwidth, standards, and platforms that separates the winners from the losers. Sure, companies are all on a level playing field due to advancing technology and platforms. For example, with standardization, building new software and technology products and integrating them with existing solutions takes much less time and costs way less than ever before. Despite that, we continue to see innovation and new business models. The value just resides in a different layer. While Jonathan would like to believe that the creation and promotion of Java would soley benefit Sun, his argument is that it makes the market bigger for everyone, including Sun, so that is a great thing.
The one thought that could cause worries is that if you buy into Jonathan’s story of commoditization, the inevitable result is that the industry will consolidate leaving only those with scale and monopoly power to survive. Just look at the examples from his post – GE, GM, Vodaphone, and banks have benefited from standardization. Well, those are all big guys. In my mind that’s ok, as consolidation will be a long time coming as we are in the very beginning of this commodity movement in the technology space. Sure certain markets are in more advanced stages, but overall as an entrepreneur and venture investor you will have Continue reading "On technology commoditization"
Another day, another politician or high profile executive launches a blog. This time it is FCC Chairman Michael Powell
and Sun’s Jonathan Schwartz
. According to Michael Powell, he decided to blog because he wants to interact direcly with his constituency, creating a dialogue and urging Silicon Valley to get involved. He goes on to say:
One reason I am participating in AlwaysOn Network’s blog is to hear from the tech community directly and to try to get beyond the traditional inside the Beltway Washington world where lobbyists filter the techies. I am looking forward to an open, transparent and meritocracy-based communication—attributes that bloggers are famous for! Regulated interests have about an 80 year head start on the entrepreneurial tech community when it comes to informing regulators what they want and need, but if anyone can make up for that, Silicon Valley can. This is important not just for Silicon Valley—it’s essential to insure that America has the best, most innovate communications infrastructure.
Both Jonathan and Michael are launching blogs to stay close to their community. What I find interesting about these blogs is that one chose to leave comments open and the other chose to not allow comments. As I have said before in an earlier post about Why I Blog as a VC
, it is the 2-way interaction and instant user feedback that makes blogging so valuable for me. I am curious to see how Michael Powell handles the comments on his blog and to understand whether or not he is truly trying to create an “open dialogue” or if he is just blogging for PR value. As for Jonathan, I really believe he is missing out by not opening his blog for comments and allowing his readers to turn his post into living, breathing ones.
Now that high profile executives and politicians have bought into blogs, I am still waiting for product companies to use citizen’s media (blogs, RSS, etc.) as Jeff Jarvis
calls it, to create true interaction with their customers. I am not just talking about using RSS to subscribe to a Top 10 list of products sold for the day or week or to update customers on an upcoming product release. What would be great is if product companies could figure out ways to use this new medium to build long-term relationships with its customers, to create ongoing focus groups for a product or service, and to collaborate with customers on product development. Another great way for product companies to leverage this medium would be by allowing me to create custom RSS feeds/stored searches on the fly for certain products or services. Sure, I can do that via email, but the interesting aspect Continue reading "Another day, another high profile blogger"
Everyone is talking about the slowdown of growth in the enterprise software sector as one of the main reasons driving consolidation talks at companies like Oracle/Peoplesoft and Microsoft/SAP. We all know that the enterprise software business characterized by large licenses and 20% annual maintenance revenue is lucrative but also hard as the big get bigger and the little guys disappear. Given the number of negative preannouncements this week from enterprise software companies, this Forrester graph from a CNET article
summarizes the market quite well.
Looking at this graph, it is no surprise that companies are looking to consolidate. Given that maintenance revenue is such a large percentage of overall revenue and growing and given that it is also highly profitable, why shouldn’t some larger players in the market consolidate the industry, keep the maintenance revenue and cash flow, and stop everything else? With that backdrop, I find it quite interesting to learn that CA’s ex-CEO, Sanjay Kumar (the master of these deals), advised Oracle on their Peoplesoft acquisition. According to a New York Newsday article
, here is what Sanjay had to say on Oracle’s strategy of buying Peoplesoft and gutting it:
At the same time, Phillips said Kumar advised “he would have the same plan post acquisition but just would not have said so up front. Everyone knows but you can’t say it and freak out the customers up front.”
As for which employees to keep and which to discard, Kumar, whose CA acquisitions were notorious for scuttling thousands of workers, offered clear advice.
“Don’t get rid of the presales folks; only the sales,” Phillips quoted him as saying. “The presales guys know the products and customers and they will get you easy add-on sales . . . and it would be crazy to forgo that revenue and those relationships . . . You don’t need the sales guy — those are for new account hunting.”
What does this mean for me from a venture perspective? Well, what I have believed for a long time is that it is hard for early stage companies to build direct sales models predicated on “elephant hunting” and going after huge deals. Each sale is incredibly long and expensive. In addition, as you can see from a number of large public software companies, revenue is lumpy and therefore less predictable as customers wait until the last day of the quarter to squeeze you for a larger discount. Despite this, we are still bullish on software companies selling to enterprises. In our mind it just requires a rethinking of what business models will work and why. Think seed and harvest – lower price points, more volume, lots of upsell over time. Think of software models with leverage – Continue reading "Thoughts on the enterprise software market"
Russell Beattie has a thorough post
on Jamdat Mobile’s IPO filing. This is significant because this is the first so-called “wireless application” play to hit the market. For those of you that don’t know, Jamdat is a provider of global wireless entertainment applications and enabling technologies that support multiple wireless platforms to wireless carriers, handset manufacturers, media companies, and independent content developers. Looking at Venturesource, I see that Jamdat was first funded in March 2000 precisely the time when VCs thought wireless was the next big thing. Many of these companies are no longer around, but it is nice to see Jamdat make it through such turbulent times, only with $33 million in VC funding.
As an investor, the difficult part of any consumer wireless play is that the wireless world is a walled garden and not an open network like the Internet. This means you are dependent on the carriers for deals and access. This is starting to change but even if you want to go to your own sites through your wireless phone, it is not easy. In addition, imagine the competition to get distribution from the carriers-there are lots of little guys knocking on the door. On the upside, if you are able to get the deals, you have an incredible ability to scale. Just look at Jamdat’s numbers: $90k revenue in 2001 with a $5mm loss and $7mm revenue in Q1 2004 with $740k profit which is an annualized revenue runrate of $28mm-not too bad in a few years. As Russell points out, I am sure a successful Jamdat offering will spur renewed interest in wireless companies. That being said, I just view wireless as another pipe, an increasingly important one that every software or web-based company will have to be aware of and leverage.
Speaking of wireless, there has been lots of talk about Time Warner launching
its own branded wireless service over someone else’s wireless network. Not only does this make a ton of sense in terms of the phone company/cable bundle packaged wars but also from a content and programming distribution perspective. If you believe that wireless devices and phones will continue to become an increasingly important way for end users to access data and eventually music, photos, and video, then what better way to control the economics of distribution then by reselling your own service.
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Like any active, early stage venture investor, I have spent a fair amount of time helping my portfolio companies build a management team. And like any venture investor, I wish I could boil hiring down to a more scientific method to make sure that each person we bring on to a company is better than the next. However, that does not always happen. The one constant in hiring, however, is the “A-Player Domino Effect” which basically says that when you hire an A-Player, they bring lots of other A-Players to the table. Think about it this way. Why do so many people want to play for the Yankees? Sure, it is the cash, but it is also the opportunity to work with other A-Players to win a pennant that lures A-talent to New York. Same with the Lakers-Gary Payton and Karl Malone took pay cuts to join the Lakers and Shaq and Kobe to win a championship. I am not saying that in order to have a successful company you have to have a lineup of proven all stars since team chemistry plays a huge role. In fact, every company may have a different definition of what an A-Player looks like. Look at the Detroit Pistons, full of chemistry and a solid bunch of hungry players, who took out the all-star laden Lakers in the NBA Finals.
However, in many of my successful companies, the first couple of VP hires made all of the difference in the world in terms of attracting strong talent and positioning the respective companies for success. For example, one of my companies just brought in an experienced VP Sales from a competitor in the market. Once he signed, he brought on 2 of his top sales performers from his prior company along with the former head of sales engineering. This was great as it helped us fill out the team below the VP-level and brought the company known quantities who had worked with the VP Sales successfully at other companies. Another portfolio company brought on a great VP Engineering who brought 3 of his top guys with him. In each case, both VPs had a few people willing to follow them to the next opportunity. It is obviously a great sign when this happens. It shows me that someone can build a team, engender loyalty, and perform at a high and successful level. Every company or investor may have a different definition of an A-Player but one thing I can say for sure is that hiring an A-Player does not necessarily mean you have to hire the “big name” or “proven all star” in the industry. Many times, I have found A-talent from up and Continue reading "The A-Player Domino Effect"