Monday, November 06, 2006

Why VCs don't invest

A former colleague of mine, Paladin Partners' Janis Machala. spoke at a recent event in Seattle and laid out the top ten reasons why VCs choose not to invest.

1.) Saying the company has no competition.

2.) Saying you will do an IPO or be bought in next year or two.

3.) Saying the financial numbers are conservative.

4.) Saying that this will be the last round of private capital needed.

5.) Arrogant entrepreneurs.

6.) The executive team doesn't have "skin in the game."

7.) No focus on milestones.

8.) Unreasonable valuations or terms.


Thursday, October 26, 2006

I'm betting on Crayon like I bet on Jaffe 4 years ago

Crayon is “a new marketing company” launched by Joseph Jaffe, Shel Holtz & Neville Hobson of For Immediate Release fame and C.C. Chapman. I’m proud to say that if I wasn’t Joe Jaffe’s first client, I was certainly his biggest in his first year when he left working for “the man” and hung out his own shingle. At the time, I was working in MSN as Managing Director of Industry Marketing and Relations. Joe was instrumental in working on a project we called “Interactive Marketing Best Practices”. At the time, the Internet ad market was still in the tank and those that were starting to understand the power of Internet-based marketing needed some guidance on how best to use the array of tools available. Joe did a terrific job of not only creating much of the content (despite the fact that he wasn’t initially the project leader) but also doing yeoman’s work to travel the country and deliver the content that was very well received. It was one of the efforts along with the Cross Media Optimization Studies led by MSN & Rex Briggs and the Universal Ad Package (i.e., ad size standards) also led by MSN (Yahoo was also a key driver) that were critical in turning around the Internet ad market.


Joe was ahead of his time then and he still is. While Joe is certainly a talker/thought-leader, having worked with him, he’s also a doer. For those companies smart enough to hire Joe and his team, I’m sure they’ll get value. I don’t know Shel, C.C. or Neville but I’m certain Joe would only surround himself with people of his caliber. Joe doesn’t suffer fools (or at least not for long). One of the nails in the coffin that solidified my leaving Microsoft was seeing how Microsoft had evolved from a company of ruthlessly focused strategists/doers to having more and more corporate suckups that were threatened by (or jealous of) people like Joe. One of the people I worked with at Microsoft had worked with Joe at one of his agencies where this guy worked on a more prestigious brand than Joe probably because he was an effective suckup there too. He had a chip on his shoulder about Joe as Joe was well on his way to becoming an industry thought leader while this guy had only honed his suckup skills during the time Joe was building his reputation in the industry. This guy had the fantasy that MSN had made Joe a thought leader. While I’m sure it didn’t hurt to give him visibility, Joe was going to be a thought leader sooner or later regardless of what MSN did.


The Crayon Manifesto sounds like Joe talking. If you are considering working with Crayon, it’s worth reading the manifesto a few times. I would give Joe only the highest recommendation professionally and personally. Here are a few excerpts from the manifesto.


1. We are shape shifters. Winning in today's ever changing and volatile landscape requires versatility, flexibility and the ability to morph on demand and as needed. We are a different kind of company that mashes-up a combination of consulting, agency and advisory services. We'll also do windows and serve tea if required.


2. We are not superior and we are not subservient; we have strong and defined points of view and we look for clients of similar ilk. We want to be challenged and we want to challenge you. We're not yes men or women and never will be. If you can't handle the friction, passion and intensity, we'll gladly refer you to another company.


5. If you're still with us at this stage, you're still far from the comfort zone of convention. We live and die by our ability to generate the kind of prolific thinking, original ideas, differentiated strategy and key insights that you need to be and stay competitive in this business. We also demand to be compensated accordingly. Performance-based pricing is not an option; it's a necessity.


7. Our culture is one which not only believes in risk-taking and experimentation, but embraces it as a vital part of our DNA. We would rather beg for forgiveness than ask for permission. Our team is individually and wholly empowered to make their own decisions and to take matters into their own hands. What doesn't kill us will make us stronger and you better.


8. We are biased in some matters and unbiased in others. Our master is the customer; our master is the truth; our master is change. We fully intend to bias against the status quo and represent the road not taken with 110% of our minds, bodies and spirits. If you need a compartment or label, then consider us media or communications biased and conversation or solution neutral.

-- You have enough yes-men telling you to tweak the status quo."
-- You can't take incremental steps and expect an exponential result


10. Talent (together with vision, culture and creativity) is ultimately what differentiates us from the shop next door. If you have new marketing blood pumping through your veins and have the kind of passion, intensity and originality that is waiting to explode upon impact, inquire within. There will never be a "no vacancy" sign hanging on our door. And we'll never downsize, rightsize, leftsize or upsize based on the flavor of the month or the direction the wind is blowing. If you're a square peg, we'll cut you a square hole. If the role isn't defined, we'll create one for you. It's that simple.


13. Following on from this, is the power and importance of direct and honest conversation and communication. e-mail sucks. It's ambiguous, lacks personality and encourages political shenanigans. We discourage "cc" and we outlaw "bcc" We try and call it like we see it, and if that means ruffling a few tail feathers along the way, so be it. If we can foster a culture of integrity, truthfulness and conviction, we believe it will naturally spillover to consumers and reflect accordingly with the brand.


Crayon is the first company to launch in Second Life. I have to admit that Second Life is something I don’t “get” yet. I’m sure I’m like others who don’t get it in that I have never been into video games and I don’t have enough time to do what I have passion for in my First Life let alone a Second Life. All the same, I think highly of John Zdanowski who recently took on the CFO role for Linden Labs (owner of Second Life) and if it’s something that Joe Jaffe takes seriously, it warrants attention. At some point, I’ll have to dig into it and learn more.


As an interesting side note, what a screw-up by Crayola to not “own” the word Crayon! This is the 2nd company I know of using the “Crayon” brand name (the other is in stealth mode so I can’t describe what they do other than it is completely different than this Crayon).

Friday, September 15, 2006

5 screw-ups and Ten Rules from a high-flying startup CEO

Liz Gannes recaps a talk on a high-flying startup whose CEO was remarkably candid in a recent speech. What’s particularly interesting is this same CEO wrote a much reach piece entitled Ten Rules for Web Startups (see excerpts below). Here’s the list of screw-ups…

Williams went through a tidy list of the top five Odeo screw-ups:

  1. “Trying to build too much” – Odeo set out to be a podcasting company with no focus beyond that.
  2. “Not building for people like ourselves” – For example, Williams doesn’t podcast himself, and he says as a result the company’s web-based recording tools were too simplistic.
  3. “Not adjusting fast enough” – The company thought its comprehensive web-based strategy would win out over the competition, primarily Apple, in the long term. “It turns out long term is not soon enough for a startup if you’re trying to get a foothold.”
  4. “Raising too much money too early” – Williams seeded the money with $70,000 of his own money, and after the TED excitement added another $100,000. After he tied up over a million in angel funding, a term sheet came through from Charles River Ventures at three times the angel round valuation. They took the money.
  5. “Not listening to my gut” – “When you’ve got a bunch of money and you’ve hired a lot of people and you’re talking to your board and you’re talking to reporters, your gut can get drowned out.”


Ten Rules for Web Startups

The following are the ten rules with a couple of samples of his rules. Click here for the details behind each.

#1: Be Narrow

Focus on the smallest possible problem you could solve that would potentially be useful. Most companies start out trying to do too many things, which makes life difficult and turns you into a me-too. Focusing on a small niche has so many advantages: With much less work, you can be the best at what you do. Small things, like a microscopic world, almost always turn out to be bigger than you think when you zoom in. You can much more easily position and market yourself when more focused. And when it comes to partnering, or being acquired, there's less chance for conflict. This is all so logical and, yet, there's a resistance to focusing. I think it comes from a fear of being trivial. Just remember: If you get to be #1 in your category, but your category is too small, then you can broaden your scope—and you can do so with leverage.


#2: Be Different


#3: Be Casual


#4: Be Picky


#5: Be User-Centric


#6: Be Self-Centered


#7: Be Greedy


#8: Be Tiny


#9: Be Agile

You know that old saw about a plane flying from California to Hawaii being off course 99% of the time—but constantly correcting? The same is true of successful startups—except they may start out heading toward Alaska. Many dot-com bubble companies that died could have eventually been successful had they been able to adjust and change their plans instead of running as fast as they could until they burned out, based on their initial assumptions. Pyra was started to build a project-management app, not Blogger. Flickr's company was building a game. Ebay was going to sell auction software. Initial assumptions are almost always wrong. That's why the waterfall approach to building software is obsolete in favor agile techniques. The same philosophy should be applied to building a company.


#10: Be Balanced


#11 (bonus!): Be Wary

Friday, September 01, 2006

Top 5 Tools For Generating Sales Leads

From a podcasting news site, this talks about the top 5 sales lead generators.

When asked, "Which offers are 'very effective' for generating high-quality leads?" marketers in all three areas studied - technology services firms, and business software and hardware - put Blog and the Podcast in the top five.

The information comes from Marketing Sherpa's annual survey of business technology marketing executives. About 1,900 responded to the survey.

Top 5 Tools For Generating Sales Leads

·         1. Free Trials -- Business software marketers ranked free trials extremely highly, with 54% calling trials very effective.

·         2. Webcast -- At 41% this was another favorite for software marketers, however technology services and related hardware firms also ranked webinars at 33% and 31% respectively.

·         3. White paper -- All business technology marketers rated white papers fairly evenly, giving white paper offers ratings ranging from 31-36% 'very effective.'

·         4. Blog -- 35% of software and ASP marketers rated their blog as very effective, as did 33% of technology services firms. However, just 19% of hardware companies felt that a corporate blog was effective. This may be because general business executives are more likely to read a blog, while IT staffers may not.

·         5. Podcast -- Last year the concept of a podcast was barely on the technology marketing map. By June 2006, 22% of software marketers who'd given a podcast called them 'very effective' lead generation tools. Perhaps IT professionals are more likely to be in an early adopter community that might listen to a podcast.

Source: Marketing Sherpa (PDF)

Thursday, August 24, 2006

Venture 2.0

In light of my recent post on what I see as the most creative solution to fill the funding gap between angels and VCs, Peter Rip’s post on Venture 2.0 is worth reading. In the first part, he does a preamble on Venture 1.0 that’s worth a read to better understand the current landscape. Here’s his intro to the series…


This the first in a series of posts on the idea of "Venture Capital 2.0."  I thought it was appropriate to first set the stage of Venture Capital 1.0 as the point of contrast.  This first post is obvious stuff to those of us who have been in the business for a while, but less so for the casual observer.


It will be interesting to see if he comments on the implications of fund sizes on the current landscape. In a nutshell, most Limited Partners (“LPs”) don’t want to invest less than $10M at a pop and don’t want to own more than 10% of any given fund. This makes the minimum fund size $100M. A fund can only manage so many deals at a time due to board commitments, etc. thus they typically need to invest $5-10M at a pop. That figure is no issue for some sectors but it is overkill or premature for others leading to unnecessary dilution for founders and current shareholders.


Wednesday, August 23, 2006

New venture investment model launched at Keiretsu Forum event in Sun Valley

One of the main reasons I have been light on blogging of late is my input to a new fund model that has been formed by Oracle and Microsoft veteran, Doug Woodward. Among other accomplishments, he was a founder of Microsoft Consulting Services and has worked with a number of startups in CFO roles. His firm, SmartStarters, and his board have been behind what I think is one of the most creative approaches to filling the funding gap between angel investors and institutional investors. Read the article I’ve excerpted from SunValleyOnline below for more details on the fund as well as the event that I catalyzed the Keiretsu Forum to put together. The event pulled together some of the best deals within the Keiretsu Forum network to present to a group of investors who descended upon Sun Valley last month.


Like the famous Allen & Company event held in Sun Valley every July, the most interesting discussions and deal-making happen outside the formal program. Though the attendees at the Keiretsu Forum-sponsored event weren’t household names like Gates, Buffett, Murdoch and the Google Guys, there were movers and shakers in the entrepreneurial world from Seattle, Silicon Valley, Washington DC and Atlanta. One of the most interesting side conversations creating buzz was a new venture funding model that fills a growing funding gap between angel investors and venture capital.

The formal agenda operated like a typical angel investor event with a sprinkling of what makes the Keiretsu Forum unique. That is, they have a major focus on relationships and collegiality as well as philanthropy.

Randy Williams, the founder of the Keiretsu Forum (KF) exemplified this by sharing his passions (he must have read “Never Eat Alone”) and his vast rolodex. KF prides themselves on doing whatever it can to help the companies who go through their screening process. During the presentation given by Martin Hedley (CEO of Positron Systems), Randy jumped in with how a contact he had in New Mexico in the aerospace sector could help Positron since they focus on aerospace (Positron’s intellectual property came out of the Idaho National Laboratory and has the potential to revolutionize aircraft maintenance).

The philanthropic facet of the Sun Valley angel investor event was evident at a fireside chat given by the extraordinary couple Paul and Debbi Brainerd. Paul is a retired tech industry legend who founded Aldus. Aldus and Paul are credited with creating the desktop publishing industry with the landmark product PageMaker. Aldus was purchased by Adobe for several hundred million dollars in 1994 launching Paul into the philanthropy world where he’s had an enormous impact. Even before the rise of the Gates Foundation, Seattle has been recognized as the most dynamic place for philanthropic innovation. Paul and Debbi spoke about two of the organizations they have founded – IslandWood and Social Venture Partners.


After the fireside chat, the buzz along with the Brainerd chat was the aforementioned new venture model. Watchers of the capital markets for startups have observed that Venture firms have ‘receded’ to later stage deals due to risk aversion and size of fund. That is, most funds these have more than $100M in the fund leading to the funds needing to invest $5-10M per deal which is more than many companies need or want. This has led to a shortage of funds for earlier stage deals since VCs are moving to later stage deals (so called “expansion stage” deals) and angel investors are few and mostly on the sidelines after getting burned during the dotcom era. The paradox is that fundable deals require real progress in financial management, corporate operations, product marketing and especially sales yet young companies can’t afford the services of high quality financial, sales, and marketing professionals—as hires or as consultants.

"I've seen this time and again with the 50 odd startups we’ve worked with", stated Dave Chase, Managing Partner of venture consultancy Altus Alliance. "We see a great young company stymied by this funding gap. We have long endorsed a “go slow to go fast” philosophy that focused on effective revenue generation as a key part of enabling early stage companies to gain initial traction but even this takes the right type of talent to survive the days of the tough initial sales that a startup must achieve in order to survive. "

Doug Woodward, a veteran of Oracle, Ernst & Young and Microsoft, is the architect of the new model that he proposes is a solution to this via an “operating fund” that finances acquisition of the necessary talent for young companies. The fund provides “execution” methodologies to early-stage companies for key processes (i.e., equity and debt financing, accounting, sales management, product marketing, etc.) that enables young companies to mature rapidly thus reducing execution & market risks. The byproduct is it produces emerging companies that are far more ‘fundable’ and have much higher probability for success. Woodward is currently working with angel investors and institutional investors prior to rolling out the fund to prospective portfolio companies. Contact information for Woodward’s firm can be found on their website.

Sunday, August 20, 2006

Take Care of the Big Rocks First

This little story is applicable both for running a startup as well as taking some breaks…


A philosophy professor stood before his class and had some items in front of him.

When the class began, wordlessly he picked up a very large and empty mayonnaise jar and proceeded to fill it with rocks, rocks about 2" in diameter.

He then asked the students if the jar was full? They agreed that it was.

So the professor then picked up a box of pebbles and poured them into the jar. He shook the jar lightly. The pebbles, of course, rolled into the open areas between the rocks.

He then asked the students again if the jar was full. They agreed it was.

The professor picked up a box of sand and poured it into the jar. Of course, the sand filled up everything else.

He then asked once more if the jar was full. The students responded with an unanimous - yes.

The professor then produced two cans of beer from under the table and proceeded to pour their entire contents into the jar - effectively filling the empty space between the sand. The students laughed.

"Now," said the professor, as the laughter subsided, "I want you to recognize that this jar represents your life. The rocks are the important things - your family, your partner, your health, and your children - Things that if everything else was lost and only they remained, your life would still be full.

The pebbles are the other things that matter, like your job, your house, and your car.

The sand is everything else. The small stuff."

"If you put the sand into the jar first," he continued, "there is no room for the pebbles or the rocks. The same goes for your life. If you spend all your time and energy on the small stuff, you will never have room for the things that are important to you. Pay attention to the things that are critical to your happiness. Play with your children. Take time to get medical checkups. Take your partner out dancing. There will always be time to go to work, give a dinner party and fix the disposal.

"Take care of the rocks first, the things that really matter. Set your priorities. The rest is just sand."

One of the students raised her hand and inquired what the beer represented.

The professor smiled. "I'm glad you asked. It just goes to show you that no matter how full your life may seem, there's always room for a couple of beers."



Wednesday, July 19, 2006

Basis for Altus' methodology published in Harvard Business Review

Regular readers of this blog know that we (Altus Alliance) have been working with Mark Leslie for 2 years putting into practice the framework that Mark and Chuck Holloway have been developing over the last few years that we anticipated would be ground-breaking for the tech startup world. Mark has previewed this framework with some select audiences in the venture community which has led to several people very positively about it. These have included VC’s such David Cowan, Ross Mayfield, Tim Oren, and Jason Ball. There was also a recent post by Ed Sim on “When to hire a VP of Sales that espoused ideas strikingly similar to Leslie’s framework. One of the most popular posts on this blog has been “What does Vinod Khosla know about Web 2.0 that others don't?” that recapped my take on the applicability of Leslie’s framework in the Web 2.0 context. With the recent publication, we have drafted a news brief that we’re sending out to a few of our contacts that I’ve previewed below.


Venture Consultancy, Altus Alliance, delivers on the promise of the Sales Learning Curve – published in the Harvard Business Review this month.


For the last 3 years, over 30 companies have sought out a new method to grow their companies and challenge the traditional strategy of startups who are taught to raise as much money as possible, grow a sales force and “get big fast.”  One of the core elements of the new approach is that the cheapest and most sustainable form of capital was revenue.  Another, is that when you introduce new products, there’s an inevitable period of “bumping around in the dark” while you refine your product, marketing and sales strategy and execution where you want to avoid over-investing in sales resources. In other words, slow down the initial trajectory in order to speed up the path to scalable and profitable revenues. These guiding principles formed the basis of a venture consultancy (Altus Alliance) focused on helping early stage companies gain revenue traction in a manner that preserves and expands their limited cash reserves.


At the same time, in the Bay Area, the former CEO of Veritas (Mark Leslie who is a current Stanford Graduate School of Business professor) was formulating a ground-breaking framework published this month after years of development in the Harvard Business Review (HBR). This framework had a strikingly similar premise to what Altus was implementing with its clients in Seattle. Mark is a member of an extremely small cadre of entrepreneurs who have taken a company from zero revenue to well over $1Billion while sitting in the CEO seat. With billions of dollars of venture capital residing down the street from Stanford University on Sand Hill Road, Leslie and his Stanford colleague Charles Holloway (the Kleiner Perkins Caufield & Byers Professor of Management) have been attempting to answer a fundamental question, “why does it always take longer and cost more to build a high-tech company than anyone ever expects?” For all the intellect, experience and graduate degrees in the venture capital industry, the sad truth is that 80 percent of venture capital investments do not pan out.


The answer (at least a key one), according to Leslie and Holloway lies in the Sales Learning Curve laid out in the pages of the HBR which they hope will prove as powerful a construct in the high tech sector as the Manufacturing Learning Curve (MLC) was to the manufacturing sector at an earlier time. Today, manufacturers wouldn’t think of running their operation without tracking the MLC because of the dramatic improvements in productivity that it offers. Similarly, Leslie and Holloway believe the SLC holds the potential to change fundamentally how high tech companies are managed, and they believe that it will lead to more high tech companies reaching the promised land of “positive free cash flow.”


“Because new-product launches often take longer and cost more than expected, many promising offerings are prematurely aborted. Smart companies give themselves time and money enough to climb the sales learning curve before ramping up the sales force.” Harvard Business Review, July 2006


Leslie refers to the type of sales people you need at the early stages as “Renaissance Rep” as opposed to “Coin Operated Rep” that you want when you have a proven, repeatable sales process. Renaissance Reps have strong entrepreneurial and product management skills and also must be resourceful, able to develop their own sales models and collateral materials as needed. In addition to its SLC practice, Altus has set itself apart by offering its clients direct assistance as “renaissance reps”, closing initial deals, iterating and improving on the initial sales process and generating initial revenues.


In 2004, the principals of Altus Alliance and Mark Leslie had the opportunity to meet and found great commonality in their respective experiences. Mark’s SLC thought leadership provided a more formalized structure to the approach Altus had been using in its work with clients. Since that first meeting, Altus became the first firm to become practitioners of the SLC framework. This approach has been at the core of Altus’ approach (even before hearing of the SLC) and has led to numerous successes with its clients including four successful exits in the last year alone.



The following is an abstract of the Sales Learning Curve paper published in the Harvard Business Review that I highly recommend reading (you can get an earlier version on our website from when Mark presented at a CEO briefing we hosted):

The Sales Learning Curve by Mark Leslie, Charles A. Holloway
Harvard Business Review - July 2006 Issue Reprint # R0607J

When a company launches a new product into a new market, the temptation is to ramp up sales force capacity immediately to gain customers as quickly as possible. But hiring a full sales force too early just causes the firm to burn through cash and fail to meet revenue expectations. Before it can sell an innovative product efficiently, the entire organization needs to learn how customers will acquire and use it, a process the authors call the sales learning curve: The company--marketing, sales, product support, and product development--and its customers transfer knowledge and experience back and forth. As customers adopt the product, the firm modifies both the offering and the processes associated with making and selling it. The more a company learns about the sales process, the more efficient it becomes at selling, and the higher the sales yield. As the sales yield increases, the sales learning process unfolds in three distinct phases--initiation, transition, and execution. Each phase requires a different size--and kind--of sales force and represents a different stage in a company's production, marketing, and sales strategies. Adjusting those strategies as the firm progresses along the sales learning curve allows managers to plan resource allocation more accurately, set appropriate expectations, avoid disastrous cash shortfalls, and reduce both the time and money required to turn a profit.

Monday, July 10, 2006

Sun Valley Angel Investor event

Yesterday, we wrapped up the angel investor event in Sun Valley orchestrated by the Keiretsu Forum. The weekend offered the attendees a chance to golf, hike, raft, bike, relax, etc. before heading home and making way for Gates, Buffett, Murdoch, the Google guys and the rest of perhaps the biggest collection of billionaires in the world at the Allen & Company conference that takes place each year in Sun Valley. Given the short notice of the event, it was well attended with angel investors coming in from Seattle, Boise, San Francisco, Denver, D.C., Atlanta and Sun Valley. They heard presentations from 3 companies in a wide range of arenas – Voxilla (operates in the VoIP space), Festival Media (trying to do what NASCAR did for stock car racing in the festivals business), and Positron (exclusive licensee of some killer Dept of Energy IP in what’s called “non destructive testing”). They all did a nice job presenting but I was most intrigued by Positron. If they can execute, they are going to be picked up by someone like GE.


Friday evening, I hosted a gathering at our place that was highlighted by a fireside chat with Debbi and Paul Brainerd. Paul is credited with creating the desktop publishing industry by founding Aldus which created the landmark PageMaker product. Aldus was purchased in the mid-90’s by Adobe for over a half billion dollars. Paul turned his attention towards philanthropy and became one of the key people who turned Seattle into a hotbed for philanthropic innovation along with a few others such as Scott Oki (longtime MSFT exec who started Microsoft’s international business), Jeff Brotman (co-founder of Costco) and of course Bill Gates. Paul and Debbi are amazing people who’ve done tremendous work with the Brainerd Foundation, Social Venture Partners, IslandWood and many other organizations. They spent most of their time talking about SVP and IslandWood – both stellar organizations I’ve had first-hand exposure to.


It was fun to see all of the relationships that were built throughout the few days people were in town. As I’d hoped, I thought there’d be benefit in cross-pollinating angel investors from around the country. There were already discussions about doing this more often as well as having collaboration from a few angel groups around the Northwest that are interested in joining forces with the Keiretsu Forum. For example, there is a great angel group in Boise that has many seasoned entrepreneurs and successful executives who’ve moved to the Boise area. One of their leaders (Phil Bradley – CFO of ProClarity which was recently purchased by Microsoft) attended the event and is the kind of seasoned entrepreneur enriching the startup community in Idaho which is still growing. He saw a number of synergies with the Keiretsu Forum that could benefit Idaho’s startup ecosystem.

Sunday, June 04, 2006

Angel investors: How to write off a trip to Sun Valley

The following article about an upcoming "Best of the Best" Angel investor confab was posted on
“Angel investors” are a critical part of the funding ecosystem for young companies. Virtually every household name in the technology business (Google, Yahoo, Apple, etc.), for example, got off the ground due to angel investors. There are over 200 angel investment organizations throughout N. America. The largest of them all is called the Keiretsu Forum and has members ranging from the former head of Charles Schwab to numerous “serial entrepreneurs” who want to put their money to work in this exciting (and high risk) form of investing. Dave Chase, a Sun Valley-based tech industry veteran, SunValleyOnline blogger and Keiretsu Forum Seattle member conceived of the idea bringing the best angel investing opportunities from around the country to a forum in Sun Valley that the Keiretsu Forum leadership embraced. The event will take place just prior to the Allen & Company conference at the Sun Valley Lodge (July 6-9).

From the Keiretsu Forum’s release: “This July the Keiretsu Forum will host a special "Best of the Best" Keiretsu Forum weekend in Sun Valley, Idaho. Keiretsu Members and special guests will review presentations from the three "Best of the Best" portfolio prospects, enjoy an evening reception with a fireside chat with PC industry and venture philanthropy pioneer Paul Brainerd and a relaxing weekend of hiking, golf and guided fly fishing with fellow K4 Members from around the country.” The Keiretsu Forum is open to Accredited Investors. If you are an accredited investor interested in attending or joining the Keiretsu Forum, please contact SunValleyOnline ( specifying your desire to receive an invitation.

If you are an angel investor, I hope you can join us in Sun Valley and learn more about some hot young companies and the Keiretsu Forum.

Monday, May 29, 2006

Moving Memorial Day tribute

I read a moving Memorial Day tribute written by a friend of mine that I thought was worth sharing.
A United States Marine was laid to rest last week at the Veterans Cemetery in Boulder City, Nevada. He was an American hero. A World War II and Korean War veteran. He was a member of what Tom Brokaw calls the “Greatest Generation”. Private First Class, George Donald Lotz was a man I barely knew. This Marine was my father.
Read on for more.

The story gave me goose bumps. The stories of men like my friend's father are unimaginable. It’s hard to say anything more than a huge “Thank you” to them.

Something his father and vets like him may have found surprising was my experience when I lived in Japan as a kid (30+ years after the war). Countless times, older Japanese would walk up to me (seeing that I was an American) and simply say “thank you” which may have been the only English words they knew. At first I was confused why they were saying that to me until I asked some Japanese to explain. They were saying thank you to me as a representative of our country (albeit a 10 year old representative) for how we treated their country after a brutal war. Today, they are now among our best friends in the world due to how we treated them after victory. That was a part of what the men like my friend's dad fought for — demonstrating a humanity that many victors of past wars hadn’t shown.

Sunday, May 28, 2006

Blog silence broken

My apologies for going silent for a few weeks. My somewhat limited blogging time has been focused on a blog I have with a local site in Sun Valley ( I blog on both local topics (e.g., growth related issues facing much of the Rocky Mountain West) as well as “Main Street Marketing” related topics. It’s the latter topic that has the most applicability to this blog. While greater and greater percentages of marketing budgets are going to the Internet, there’s been relatively little change with what I’m calling Main Street Marketers. These are the companies that fill most community newspapers and Yellow Pages books. They include restaurant owners, local retailers, insurance agents, real estate brokers/agents, nurseries, contractors, and franchisees of national franchises (and many more). The latest figures I’ve seen have nearly 1/3 of all media consumption taking place online yet less than 1% of the ad budgets of Main Street Marketers’ budgets have shifted to online. From the time I worked on Sidewalk (now CitySearch) starting in ’95 to seeing MSN/Yahoo/Google strive to get local businesses to spend search marketing dollars, it’s been a tough nut to crack as the cost of sale is usually quite high to profitably serve that market. That said, a > 30:1 disparity remains tantalizing and it’s clear that the newspapers and yellow pages companies have the lock on those budgets for now. I’m immersing myself in these issues as I think there will be ample opportunity to correct the imbalance between consumption and spend.


As you’ll see if you read some of my posts, many of the issues I’m discussing are what were discussed with “Madison Avenue Marketers” that have huge budgets and tremendous resources to evaluate online. Main Street Marketers don’t have those kinds of resources. Typically the owner of the business is also the Chief Marketing Officer among the many hats they wear. They are often worrying about issues that are in their face (e.g., employee turnover, excess inventory, etc.) versus having the luxury to think strategically about the fundamental changes that have happened with their customers’ behavior. One quote I got from a very successful retailer was eye-opening. He said that he just advertised in the newspaper (cutting out radio & TV) and he didn’t want to complicate his life by taking on online advertising. He went on to say that you never know if advertising works anyway so why complicate things. I had some responses that changed his perspective (and game plan) but nonetheless it’s telling to see where Main Street Marketers’ heads are at. Periodically, I’ll share what I’m learning from talking with the small business owners that I’m getting to know by living in this small town. While there are still big $$ to tap with Madison Avenue Marketers that’s going to towards TV, etc., at least as large of untapped budgets are with Main Street Marketers.


Here’s a sampling of some of the posts I’ve had geared toward that audience…


Political Phone Spam’s effect on voters -- political candidates and municipalities are also significant buyers of local media so I’m hoping to shake up their thinking so they don’t waste money doing ineffective advertising

Are you part of the problem/solution for 5 million lbs of waste?  -- I did some back of the envelope math on the amount of waste the local papers generate and why local businesses (most of who consider themselves environmentally aware) are contributing to the issue

Once every 50 year occurrence affecting valley businesses - learn more -- this recaps a session I was asked to give by the local chamber of commerce on Internet marketing

Event Sponsorship Risks & Best Practices -- I’ve been a proponent for a long time of the value of event sponsorship however it’s very easy to waste a bunch of money doing it. I outlined some best/worst practices in this mini-series.

How non-profits benefit from blogs -- the local papers get somewhere between $250,000 and $500,000 from local non-profits in a community of 20,000 people. I think it’s a tremendous waste of money that could be eliminated by blogging so I advocated for that in this post.

Thursday, April 27, 2006

The story behind Microsoft opening up its IP

With the formation of Wallop out of Microsoft Research, Microsoft's IP Licensing Group is again in the news. Read about it here, here and here. A year ago, Mary Jo Foley reported on the fact that Microsoft has established a new division charged with licensing Microsoft-Research-developed technologies to startups and venture capitalists. This is the next step started over a year ago. My former colleague Bryan Mistele based his new company (Inrix) on Microsoft Research's predictive traffic technology and received one of the largest seed rounds in Seattle in some time (interview here). I'm going to reach out to a friend in that department to learn more. Stay tuned...Here's a list of what they are making available so far.

David Kaefer is the Director of Business Development for Microsoft’s IP Licensing group. The Seattle area’s largest A round in the last year went to the first licensee of this new effort (Inrix) to more broadly license Microsoft’s broad base of under-utilized IP. It’s worth taking note when something as significant as that happens so thought it was worth sitting down for a chat with David. The technologies they are making available tend to be "pre commercial" in that they aren't quite ready for primetime in terms of a final product form in areas that are getting funding. They tend to be standalone products or at least a substantial feature of a bigger product.

Chase Market Velocity (CMV): How are you going to measure the success of the program?

David Kaefer (DK): Success of this program is indicated in many ways, but in the short term it is shown with every licensing agreement we sign. Because of the nature of these agreements, the ultimate success and benefits from this program will be borne out over the long term.

CMV: The first licensee (Inrix) was all ex-MS people? While I assume you don’t have to be an ex-MSFTie to license the technology, why would an ex-Sun person (as an example) consider licensing your IP?

DK: Inrix technically wasn’t a part of this IP Ventures program, but rather that agreement occurred as a result of the kinds of inquiries we received on a regular basis and is an example of some of the impetus for the creation of the IP Ventures program. This program is open to all comers, and we hope that it is interesting to all parties regardless of their former employer. The program offers rich, stand alone technology that is best utilized by a party who has the capability of taking it from the prototype phase into the production phase and ultimately to market. We want to talk with any interested party who has those capabilities.

CMV: What's a typical deal structure? Equity? Royalty? For how long?

DK: Each agreement is negotiated on an individual basis. We can accept cash or up front payments, but we recognize that many start ups need to conserve cash. Equity or royalties or any sort of creative combination of the two are what we expect to see on a regular basis in these agreements. The length of each agreement will also vary on an individual basis and will depend on the parties, the technology, the perceived market for the technology and other relevant factors.

CMV: You have 20 technologies listed on your site that are available. Why these 20? How many others will come out? Are you going to be focused in particular areas?

DK: We started with these twenty based on feed-back we received from the venture capitalist organizations we spoke with. They helped us identify the technologies that are most marketable and the ones that are receiving the most VC backing right now. We expect many others to be unveiled over time, but it’s impossible to predict exactly how many or when or even the particular technology focus of the innovations added to the IP Ventures program in the future.

CMV: What makes these technologies something MS wants to share vs. other R&D that isn't shared externally? Which do you think are most valuable of what they are licensing? Why?

DK: The main reason these technologies are being shared is that we see a market opportunity for them. They are not currently being used by Microsoft in the manner in which another company could use them. We think that all of the technologies available under this program are valuable.

CMV: What kind of assurances do your licensees get that the IP is defensible? If there's a dispute where a 3rd party claims infringement, how is that handled?

DK: Each agreement will be negotiated individually to the mutual satisfaction of the parties. There are many ways that the potential liabilities can be borne and distributed amongst the parties and each agreement will factor in the unique indemnities and assurances necessary for the parties involved.

CMV: Has any form of market validation or input taken place for these technologies? Do you know what markets are likely to be interested in the various technologies? Is there an objective person/team providing that validation?

DK: Right now, the primary form of market validation has been the input of the VC’s and entrepreneurs we have been talking with in the last few months. For example, we have had discussions with VC’s like 3i plc, Advanced Technology Ventures, MDV-Mohr, Davidow Ventures, OVP Venture Partners, and Insight Venture Partners. The true test will occur when the technology is released to the market, but we feel confident that the outsiders we’ve spoken to represent a broad cross-section of the market place with a sophisticated business sense about which technologies are best to pursue right now.

CMV: What's the process once someone sends a mail to the team expressing interest?

DK: The complete details about how to take advantage of this program are available at

CMV: With corporate VC investment on the rise, will MSFT ever be a financial backer of these companies in addition to providing IP?

DK: That is not how we envision our participation in these agreements but it isn’t something that we would necessary rule out.

CMV: How will the researchers who developed the technology be available to the startup?

DK: To operate this program successfully, we recognize the need for a high-touch approach. We intend to work with the licensee to provide them with what they need to implement this technology into their products. Access to Microsoft researchers may be important to transfer basic know-how about the products that isn’t well documented in some other form. Access to these researchers will be a consideration for a number of the deals.

CMV: How do you plan to reach out to the entrepreneurial and VC communities to make them aware of what has been developed?

DK: Our outreach has already begun. We have been meeting with VCs and entrepreneurs over the last few months. We have spoken to large groups of VC’s at the NAVC conference in New York last week and the VC summit in the Bay Area this week. Our IP Ventures team is going to Europe next week to continue the engagement we’ve begun with venture groups like 3i plc. Additionally, we’ve issued a press release and conducted many media briefings on this program roll-out.

CMV: Are there any upcoming events where people can learn more?

DK: To this point, we have done 1:1 meetings with VCs as well we are included in forums Microsoft puts on that target VCs. We have also had meetings with established companies looking for specific IP. What often happens is we share some of what we have and they indicate specific areas they are looking for. In some of those cases, we have technologies that are applicable.

CMV: Have you reached out to angel alliances or individual angel investors?

DK: We are experimenting with a variety of different groups to reach out to. While we have spoken with individual investors, it's an interesting idea that we'll consider.

CMV: Do you have any technologies applicable to the emerging Smart Energy arena?

DK: The technology behind Inrix is focused on "machine learning" and has been applied in areas ranging from anti-spam to traffic (Inrix) where there are repetitive and predictable outcomes. It's entirely possible that the same technology could be applied into Smart Energy. In addition, a Utility could use a technology that we call "Zone Zoom" that would allow a utility to drill down on problem areas on the grid. We have also done work in battery cell technologies.

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Friday, April 21, 2006

New West Network and SunValleyOnline become partners

The New West Network (NWN) is a well-backed enterprise focused on covering the changes in the Rocky Mountain West which is region transforming from an agriculture and extraction based economy to a more mixed economy with significant high tech and tourism industries (typically one of their top 3-4 industries economically). New West found that the traditional media in the communities throughout the Rocky Mountain West weren’t adequately covering this transformation. NWN and (SVO) recently established a relationship where SVO is an affiliate of NWN since they complement each other.

Roughly a year ago I began informally advising the owner of the SVO business. It’s a local site focused not surprisingly on Sun Valley, Idaho. He started it 2 years ago and it has grown into a major presence in the Sun Valley and surrounding area. I have had interest and involvement in local online businesses since I managed half of the Sidewalk (later purchased by Barry Diller’s CitySearch business) cities. [Sidewalk is a whole other story I may blog about at one point that gives a window into big and engineering-driven company politics.] Virtually all of the big Internet players (Google, Yahoo, Microsoft, IAC and AOL) covet the large pool of local ad dollars that are typically captured by monopoly newspapers and yellow pages. To date, the only real success the big guys have had is capturing local advertisers via Search that is most likely affecting yellow pages spend.

The thing that has made the dollars that especially the newspapers have captured attractive for the big guys is the ever growing disparity between media consumption and media spend and the audience loss newspapers have suffered. Consider the following:

  • Overall population: 4.7x usage to spend for Internet while 0.3x for Newspapers + Magazines
  • Youth population: 11.3x usage to spend imbalance for Internet while 0.4x for Newspapers + Magazines (usage weighted towards magazines)
  • The average age of a newspaper reader is ~60 – an age group that has typically passed their peak spending years and have already made decisions on what brands they are loyal to
  • Adults 18-54 have the Internet as their #1 media choice (45.6%) vs. newspapers (3.2%)
  • Free classifieds such as Craigslist and Google Base are eating away at the most profitable portion of newspapers business

While much has been written about newspapers demise, they are still quite profitable especially in small markets. In fact, the Wall Street Journal recently wrote about the success of one of Lee Enterprise’s newspapers in Bismarck, North Dakota. Lee is an Iowa-based owner of newspapers (mainly in small towns) with nearly $900M in annual revenues. Coincidentally, Lee has a newspaper in the Sun Valley area. Doing “back-of-the-envelope” math, one finds that a site like SVO has anywhere from 1/15th to 1/40th the amount of revenue that the local newspapers have yet they have an audience is as big or bigger than their newspaper counterparts.

Since the online local ad market is of ever-increasing focus by the big and emerging Internet players, I expect I will blog periodically on what I’m observing in this local community (Sun Valley) as it ought to be a microcosm of what’s happening on a broader level. Understanding the inherent strengths and weaknesses of both the Internet players as well as the local newspapers and yellow pages will be instructive for other arenas. There are many reasons why small businesses which make up the bulk of newspaper advertising spend in a market like this are only spending 1% of their budgets online yet their customers are spending more than 30% of their time consuming Internet media. The real question is when the consumption vs. spend gap will close as it has done on a national basis even though that disparity is still large.

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Sunday, April 09, 2006

The 6 most valuable letters of all time

Fred Wilson recently commented on whether technical innovation or business model innovation was more powerful for a startup. He cites examples of both being drivers. I'd argue that business model innovation is more durable. Mark Leslie (a rare CEO who took a tech company from $0 to over $1B in sales) has commented on the fact that execution risk for most startups has shifted from technology to go-to-market as development tools have gotten so much better. Consequently, technical innovation has become much easier to replicate. One only has to look at a couple of the most sustained successes in tech over the last few decades to see how busines model innovation has been very durable -- IBM and Microsoft. Having competitive (though not always the best) products was clearly important but not sufficient to drive their long-term success. For IBM, it has been their world class sales & marketing machine that allowed them to weather their darkest days yet still have over $60B in revenue. With Microsoft, they've had two monster successes that boiled down to 6 letters encapsulating their business models that each changed the rules of the game in their market space and proved to be very durable.

Windows -- The 6 critical letters were O-E-M and I-S-V. There's little doubt that OEM'ing Windows to hardware companies rather than taking the path to maximize short-term profits as Apple did in the 80's and 90's by controlling both the OS and the hardware was instrumental in their success. Secondly, their investment in and success with ISV relations dwarfed any of their competitors. The byproduct was many customers had no choice but to go with Windows as that was the only platform that their applications ran on top of. While Microsoft certainly has taken a beating for the issues that come along with a platform that has infinite combinations of software and hardware vs. a limited set with the Mac, they have happily taking that beating as they ran to the bank with trainloads of cash.

Office -- It boils down to 6 letters again -- b-u-n-d-l-e. Initially they just did "marketecture" (initially there was no integration between Word, Excel & Powerpoint) by slapping three products in the same box for a combined much lower price than buying WordPerfect, Lotus 123 and Harvard Graphics. Over time, the products became more integrated but they changed the discussion within I.T. shops from individual productivity apps to having an Office suite. Their competitors were slow to move and then got severe indigestion while acquiring companies to compete with office. There were 6 other letters that were also critical in Office's success -- S-e-l-e-c-t (another business model innovation). Select was the name of their volume licensing program with enterprises that made Office very difficult to unseat.

Each of those 6 letters for Windows and Office have probably generated more combined profits than any other product over their lifespan in the computer industry.

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Tuesday, April 04, 2006

Tips on Working with Microsoft

Jim Lejeal, CEO and Cofounder of Oxlo Systems Inc. has been a partner of Microsoft's in a few different companies. He has some great tips on how to work successfully with Microsoft. Having worked on various partner programs at Microsoft, it was terrific to see companies who leveraged the heck out of Microsoft, but it was also frustrating to see others spin their wheels.

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Tuesday, March 28, 2006

Segmentation's benefits

While a simplistic view of segmentation could be viewed as “selfish” as stated in Seth Godin's blog entry on segmentation, there’s much more to segmentation than simply efficient targeting schemes. As Seth states, “You do it by creating something worth talking about!” In order to do that, you need to understand what makes customers tick even if they can’t articulate it themselves. If you look at the benefits of market segmentation (paraphrased from a Segmentation presentation given by Mohan Sawhney – a noted Kellogg prof), many of these don’t strike me as selfish. Rather, they provide a framework to understand customers and then reach them while avoiding what Professor Sawhney calls “wastage”. Said another way, it’s avoiding pestering people with marketing that isn’t something they’d be interested in – that doesn’t sound selfish to me.

Customer focus: Customers have different needs and priorities, so you cannot please everybody with the same offering. Segmentation allows firms to be more costumer-focused by responding differently to different customers

Profitability: Not all customers are equally valuable. Segmentation allows firms to focus their resources and marketing programs to identify, attract, develop and retain the most valuable customers.

Competition: Segmentation helps firms to identify customers that are most “vulnerable” to competition and customers that are most “winnable” from competition.

Differentiation: Segmented offerings are more differentiated and therefore less commoditized; the basis for comparison shifts away from price to value.

Productivity: Segmentation reduces “wastage” in marketing communications spending by allowing the right messages to be sent through the right channels to the right customers at the right time.

For the early stage businesses I've worked with and observed, segmentation can be an effective tool to avoid wasting precious resources trying to serve a market that doesn't value their offering.

An Economics lesson for the computer industry

Joel Spolsky lays out a nice economics lesson on micro economics for the hardware and software industry, and the accompanying implications that are sometimes ignored by the likes of Sun to their demise. One of the key concepts he discusses is the criticality of understanding your products "complementers" and what complementer pricing can do to your own product's pricing. Well worth reading this "oldy but goody".

Thursday, March 23, 2006

Demo tips from DEMO

Periodically, you'll have opportunities to demo your product in front of influential customers, partners or investors. David Hornik has some useful tips based on his observations from the well-known DEMO event.

Wednesday, March 22, 2006

A new tactic against Advermin

John Cook reports on an effort to thwart 180Solutions that sounds like a similar approach to what I suggested back in January to "out" what I called "advermin". I don't know about whether 180Solutions tactics are clean today but any organization (whether they are the advertiser or the enabler) that undermines the health of the overall online ad market deserves being shamed IMHO.

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Combining productivity and staying fit

Two things I'm fanatic about are productivity and working out. I try to squeeze every ounce of productivity out of my work day and I rarely miss a day of working out. If I haven't worked out, chances are I'm on the proverbial death bed with the flu. When I worked in the typical corporate environment, I had a gym membership. One of my little productivity habits was printing out non-urgent emails and articles that I'd read while on a machine where I could read while I worked out. Since my "gym" is now the pic you see on the right, I had to make some adjustments since it's impossible to read while running, snowshoeing, skiing, mt. biking or climbing.

There are two ways I've solved that issue. One thing I do to organize my week is write down "think" items. These are items where I don't need to be at my desk. In fact, being at my desk can be an impediment to clear thinking. Those think items go with me on my mountain adventures along with a voice recorder if/when I have a nugget I don't want to forget. As I've said many times, most great ideas come don't come while you are inside a conference room or office. The other productivity enhancement is listening to podcasts. One of my criteria for the MP3 player I bought was to also have a voice recorder so I can also capture thoughts while I'm out and about. My current podcast subscriptions include Joseph Jaffe's Across the Sound, Adam Curry's The Daily Source Code, iMediaConnection's podcasts, and various podcasts from NPR and Business Week.

Brad Feld has taken this productivity bent to a whole new level with his Tredputer. The thought of jumping on a conference call while I'm on a hike or while I'm on a trainer bike has definitely crossed my mind but I'm generally at too high of a heartrate to be able to do it without irritating the others with panting. For now, I'm happy with my approach to productivity.

Tuesday, March 21, 2006

Penny-wise, pound foolish

One of these days, I'm going to come with my Top 10 list of ways emerging businesses are Penny-wise, Pound-Foolish. While there are plenty of counter-examples such as RightNow's bootstrapping story and the Inc. magazine story of my friend Dave Morgan (founder of Real Media & Tacoda), too often I see organizations tout how great they are at being frugal by sharing symbolic gestures like desks built out of doors (last I checked, I could get a desk at IKEA for roughly the same price as a door) while wasting real money in other areas. The most common mistake is over-hiring sales people too early in the process which is often coupled with over-spending in marketing. Mark Leslie's Sales Learning Curve framework outlines this in great detail using his composite company example -- Nano Optical Customer Adaptive Software (NOCASH). His whitepaper and presentation are posted here from his CEO Briefing that Altus Alliance hosted.

Sucking down more important than sucking up

Tips from Guy Kawasaki remind me of #11 on my list of Uncle Bill's words of wisdom he shared upon his retirement after a successful 46 year career as a "new products" guy.

#11 Never trust a person who is Dr. Jekyll to those above him and Mr./Ms. Hyde to those under him. Click here for the rest of Uncle Bill's list.

The one from Guy's list I believe in the most is...
8. Rack up the karmic points. I believe that there's a karmic scoreboard in the sky. It keeps track of how many points you've earned and how many you've used. Therefore, when you have the opportunity to help others, do so--and do so with glee. You'll build up points, and someday your kindness will be returned to you. However, understand that you need to accrue these points before you need them--you cannot go negative.