“There’s a lot of stuff that’s accidental about Fog Creek and Stack Exchange, but lunch is not one of them. Ten years ago Michael and I set out with the rather ambitious goal of making a great place to work. Eating together is a critical part of what it means to be human and what it means to have a humane workplace, and that’s been a part of our values from day one.”—Lunch - Joel on Software
Yesterday, I spent some time talking to a founder in NYC. We’ve become friends over the last year or two. We decided not to invest in his company for reasons that I won’t get into on this post. But I’ve tried to be helpful because I like him.
He is in the process of raising a seed round. We were talking about possible investors that he should talk to and I shared with him my thoughts on who I thought were great and not so great.
I suggested a name of an investor that I really like and this founder said something like “he’s great. but, he knows who I am and what we are doing. if he was interested, he would call me, right?”
I understand this logic. It’s not a lot of fun to fund raise whether you are a hot company or one that is grinding it out. It takes time and getting a rejection ain’t easy. Also it’s more desirable to be wanted than to try to convince someone of something.
But if you like the investor, I would recommend staying close to them and give them the update on your progress, your plans and your vision. We have a few startups in our portfolio that we passed on (a few times) before we made our initial investment. Sometimes it’s the progress and sometimes it’s the sheer will and determination that gets us over our concern.
Don’t be shy. Make the call and get the meeting. The worst that can happen is they turn you down. That’s not awful either. Remember, you get to show them how wrong they were :)
Both parties need to recognize that no matter what happens, the utility functions of the VC and the entrepreneur simply do not match in an early-stage exit scenario. They just don’t. And this has to be ok. Because if it’s not, the chance for establishing healthy long-term relationships between VCs and entrepreneurs goes way, way down. Investing in an early-stage company isn’t merely investing in a product, technology or service, it is investing in a person (or people) and a relationship. Building companies is necessarily a people business. And approaching these relationships from the perspective that “life is a marathon; not a sprint” is, in my opinion, essential to building a healthy venture firm for the long haul, and will ultimately optimize long-term returns as well.
Excellent post & I couldn’t agree more. This happened recently to us at 5min. The investors thought the price was too low but ultimately the founders wanted to sell. So we sold and I’m thrilled for the founders. They treated us great and built an sweet company along the way. What else can you ask for.
So, when the press grabs onto to the meme of “founders are assholes” or ex-founders who didn’t stay with the companies over time whine about their co-founders or when people who didn’t really have any involvement with the creation of a company sue for material ownership in the company because of absurd legal claims, it annoys me. It cheapens the incredibly hard and lonely work of a founder, creates tons of noise and distraction, but more importantly becomes a distraction for first time entrepreneurs who end up getting tangled up in the noise rather than focusing on their hard problems of starting and building their own company.
Brad wrote a great post about a topic that has been stuck in my head for the last few weeks. And here’s what I wroteabout @Ev in the comments.
There are a few posts on Techmeme this morning about founder liquidity.
Here’s my take.
Back in the day, the idea of employees selling their shares before a liquidity event for all shareholders was looked down upon and rarely ever happened. it signaled that the founders didn’t believe in the big idea and that was a signal no one was interested in.
These days founder liquidity happens more than in years past but to be clear it’s still rare. The press suggests this is a common occurrence and in my experience that isn’t the case. The vast majority VC backed investments do not include liquidity for founders/employees.
In the select few cases where it does happen, providing liquidity to founders/early employees clearly has some benefits. It rewards them for creating significant value. It allows them to diversify their personal economic situation. And if done correctly aligns everyone on the cap table to seek building a bigger and better company.
We have seen this a few times in our portfolio and so far I’m quite pleased with the results.
There are two significant things to be mindful of when considering founder/employee liquidity ahead of the entire cap table
It may cause some folks to leave before the mission is achieved. I don’t have the data but it feels like early google employees stayed at google longer than the early Facebook employees. Again that’s what it feels like - I want to find out for sure.
Before there is any founder/employee liquidity there needs careful evaluation about the capital requirements of the company. That doesnt mean the company needs to be profitable. It just means that the company needs to be confident that it has the ability to raise enough money (thru equity or revenue) and having equity capital goto founders instead of the balance sheet won’t hurt the financial requirements going forward.
(please excuse typos and lack of links. wrote this on my phone).
Don’t worry about money right now. You can always get a job that pays you plenty of money. Don’t worry about your resume. Don’t worry about “am I positioning myself the right way for something five years from now.” I know way too many 45 year olds who have plenty of money, have done all the right career things, yet are unhappy with where they are in life, where they live, and what they do. Don’t be that guy or gal.
Apple’s primary business is selling computing devices and related hardware, with healthy margins and tightly integrated experiences, to customers who generally replace them with the newest models every 1-3 years.
Marco believes that Apple is going to stay out of the tv business.
I have no idea if Apple will ship a hdtv.
But i do feel like the status quo needs disruption given all the ads we don’t watch, poor UI’s on set tops, forced bundling of content, dated content windows models, displays that are uninspired, tv that doesnt’ take advantage of the web or social data or experiences, nasty remote controls, confusing wiring and set up….the list goes on.
“We’ve had lots of positive press from Fortune in the past. In July of 2010 they published an article titled, “Twitter’s Business Model: A Visionary Experiment.” The article ended with, “Facebook might want to take notes.” It may seem odd, but from my perspective, this means we are being taken very seriously. Twitter is an important company and it’s under scrutiny from journalists—this is exactly how it’s supposed to work. Now it’s our job to prove the reporters wrong so they can write an article later about how we have made dramatic progress.”—Biz Stone: The Trouble Bubble
For as long as I’ve been working in or with consumer related startups, i often hear folks that don’t embrace this line of work say things like “that company is interesting but I want to work/invest in a company solving a real problem”
I gotta come clean: I think that attitude is bullshit.
There are two problems with the view that consumer web services isn’t “real” or isn’t hard.
First, it doesn’t respect or appreciate how big and important these things can become.
And I remember the days that big internet companies looked at Google search as a feature not a real company that could go the distance. Crazy, huh.
I’m sure many incumbants looked at Facebook in the early days with same view.
The second reason why I find the “i only want to work on hard problems” objectionable is because they don’t respect how difficult it is to build and operate a consumer service that supports a growing network of millions of users. It’s a 24x7 job and with crazy stress and difficult decisions and challenging work.
And if you can do something like that and delight your users every day with fun, entertainment, value, information, or a sense of community then you are solving a real problem. Don’t let the haters get you down.
Update, 4/17/11: I’ve received a few emails and seen a few tweets and there seems to be some confusion about this post. To be clear, I dont’ have any objection to any line of work as long as it’s legal and honest. This post is my objection to folks that look down on social apps or entertainment apps, etc.
“And I second with emphasis the focus on fairness. Founding teams that allocate the founders equity fairly stay together a lot more than founding teams where one founder has a much better deal than the others. The same is true of venture capital firms. The most stable venture partnerships are those where the partners share in the carry equally or near equally. At the end of the day, this is as much about respect as it is about money. And when people feel disrespected, they are going to leave at some point.”—A VC
When your startup is grinding it out in a market like this
There are number of startups that are growing like crazy these days. We all know the well known names. And there are many startups that aren’t well known that are also quite successful.
These known and unknown fast growing companies have accomplished amazing things in a relatively short amount of time and they all certainly have plenty of work ahead of them to continue their growth and success.
But this post isn’t about them.
This post is about young companies that have been around for 3 or more years that are grinding it out. It’s about young companies that aren’t doubling their user base every 6 months or breaking new revenue records every month or whatever the important metric might be. It’s about companies that are figuring out how to survive as they figure things out.
We all know these startups and the team that are trying their best every single day to figure it out.
It’s not an easy task to run one of these companies. Hiring is hard. Managing investors is hard. Dealing with all the noise in the market is hard.
Here are some recommendations and thoughts on how to deal with your company during this time.
-First, ignore the press and hype. don’t try to keep up with the Joneses. It’s a different game/animal and not relevant.
-Take care of your team. This is true for any company but if you are grinding it out, you need to keep your costs under control which means to have the core team in place and that’s about it. And you need to take good care of that team by communicating exceptionally well, staying on top of reviews, doing 360 reviews, focusing on the culture and being generous with options. When you are growing fast, you can sometimes get away with a bit of sloppy HR issues but it’s completely inexcusable for most.
-Reward loyalty. Each startup is different but there needs to be recognition for rewarding loyalty. Your team is more than qualified to leave you and find a job that pays more or has options that are increasing every quarter. When you goto bed at night stressed out, breath deeply and appeciate that your team is loyal to you the founders and to each other. Take good care of that loyalty. Let them know how much you value it. Life is long and good people take care of each other in times of need instead of hitting the door in search of a better paycheck. But there has to be two way love.
-Pay close attention to your vision. The team needs to know that the company has a higher calling and that the grinding out phase is just part of the journey for a worthy cause (vs an ad hoc approach to staying alive a bit longer).
-Keep an open and honest dialogue and relationship with your investors. Your investors will be tested in tough times and the best ones (and worst ones) will show their true colors. We have a few portfolio companies that couldn’t get any love from new investors when they did their Series B. We ended up doing an inside round, the company ended up executing like crazy and the Series C became a much sought after stock.
And lastly, i just want to say thanks to the founders and team members of these companies. it’s ain’t easy and I’m proud of you - whether you succeed or fail.
i’d welcome other advice and feedback to the grinders out there.
When the Verizon iPhone came out I immediately picked one up after struggling with Att for years.
Yes the voice network is better on Verizon. At least in the places i travel most in the united states.
But on Friday I switched back to Att.
I switched for a number of reasons
-the inability to use data while on a call is frustrating. I tether my MacBook air to my phone and so this limitation sucks. Or when Im talking to Lauren and we are trying to choose a restaurant. Or talking about a business deal and I can’t talk and review a document that the sender wants me to review.
-Verizon may have a better voice network but it’s I felt the speed difference on the data side. 3G on Verizon is much slower than Att. And I often saw my Verizon phone in 2g mode.
-I get out if the united states a few times a year. In that scenario the Verizon iPhone turns into an iPod touch. Not what I need.
-and lastly the Verizon iPhone felt like prison. I like the ability to move my sim card to different handsets and try new devices. Last week i was at dinner with Peter Rojas and he showed me the new gsm Motorola Android phone. I can’t just pick up that phone and give it a try with Verizon. I’m locked in tight.
So I’m back. I’m back to a faster and more flexible place. And I’m at peace with the trade off.
Ultimately every startup has to decide who is their customer. That priority needs to take precedent over all other decisions even if it means giving up “low hanging fruit”.
When I meet a startup that says we are building a consumer app and also a white label app, my first reaction is to cringe.
There is nothing wrong with a b2b or white label business. And certainly there is nothing wrong with building consumer apps. But to try to do both is beyond challenging.
When I provide this feedback, some folks agree with me and others disagree. Those that disagree sometimes tell me it would have been better if Twitter also built an enterprise version of Twitter and a carrier product as well.
And then we end up agreeing to disagree.
I feel pretty strongly about this. One of the reasons I think Apple is so successful is that they are focused entirely on the end user.
John Chambers, the Cisco CEO recently wrote a memo about their challenges. The consensus seems to be that they took their eye off the networking ball by straying into new markets.
Take a look at Cisco’s consumer products like a typical Linksys router and compare it with an Apple Airport Extreme and you can tell who is focused on telcos/service providers and who is focused on the consumer.
I’m not trying to disrespect Cisco. They are an amazing company with terrific people and will continue to have a successful business for years to come.
But Cisco is an example that even companies with huge balance sheets have a tough time focusing on two different customer types.
There are exceptions. Take Amazon. Amazon.com is one of my favorite ecommerce sites online. They are hyper focused on the user. But Amazon Web Services is all about developers and businesses. This is highly unusual but they have made it work beautifully.
Startups are constantly racing against the clock. THey don’t have the resources of a Cisco or Amazon to experiment with multiple customers. The majority of startups need to be hyperfocused.
“Doerr just about fell off his chair. Surely, he replied to Page, you can’t be expecting a market cap of $10 billion. Doerr had already made a silent calculation that Google’s optimal market cap—the eventual value of the company—could go maybe as high as one billion dolars. “Oh, I’m very serious, said Page. “And I don’t mean market cap, I mean revenues.”—When John Doerr Met Larry Page