Is Zillow reading this blog?

Perhaps Rich Barton is reading this blog. Back in April, I commented on why I thought the odds were against Zillow. The lack of knowledge of the idiosyncrasies of the real estate market was a key issue that I thought would impair them -- it looks like they are starting to plug that gap. Yesterday, they announced additions to their board that included familiar names -- Erik Blachford (ex-CEO of Expedia) and Greg Maffei (ex-CFO of Microsoft and current CFO/President of Oracle) and one name less familiar (Gordon Stephenson). Gordon is the co-founder of a real estate brokerage. Coincidentally, I was one of Gordon's first clients when he got into Real Estate right out of Stanford in the late 80's. We were both in our early 20's looking to build real estate empires coming at it from different angles. I later got distracted/consumed by Microsoft and scaled back my real estate investing but he's been in it ever since.

Washington 3rd in # of VC investments

A few excerpts from the article in the Seattle P-I reporting on venture activity in Washington...

Twenty-six companies in the state received financing, ranking it behind only California and Massachusetts in number of deals...


A diverse group of Seattle-area companies received financing in the second quarter -- ranging from digital content storage maker Isilon Systems to high-speed Internet service provider Ygnition Networks...



Investments also were pretty evenly split in terms of company development -- with six early-stage deals, six second-round deals and eight later-stage deals.

Ten Strategies That May Improve Your Business

VC Jason Caplain has a good list of 10 ways for companies to improve their business. Click here for the full list and commentary behind each one. Here are my favorites...

• Service your competitor's customers when they have problems
• Hire smart people
• Understand who your best customers are and shower them with attention.
• Work with partners, not service providers
• Spend time with others in the market that have "done it before" and pick their brain

Top media brass in my backyard

Every year, right after the 4th of July, Allen & co. has their invitation-only event in Sun Valley where they spend $20M to entertain & educate this elite audience. The media is kept out but they camp out around the edges of the conference. After Davos, I'd guess that this event is the 2nd biggest event in terms of power players in the business world getting together. It certainly tops Davos in terms of composition of billionaires (Gates, Buffett, Brin, Page, Jobs, Murdoch, Dell, Knight, etc.). The main news that came out of the event (other than who attended) was the announcement of Morgan Freeman teaming up with Intel for something they call Clickstar. Major deals such as the ABC/Capital Cities merger were consummated here and the accompanying investment banking fees is what allows Allen & co to drop $20M per year.

You've probably never seen more private jets in one place than what you see at the little Sun Valley airport during the conference. Though they keep it well hidden, there is tremendous security. Michael Stapleton Associates, an explosives-detection security company designated and certified by the Department of Homeland Security to provide anti-terrorism technologies, provides security together with local law enforcement officials and various subcontractors. Though security is tight, it's easy to walk around the Sun Valley Village and see various celebs whether it's Barry Diller rolling by on his mountain bike or Phil Knight walking by in his signature shades.

Most locals who work the conference are discreet about what they are doing but you hear some funny stories from time to time of the high maintenance people when they go on outings such as rafting trips (e.g., you better hand them a glass of wine as they step off the raft). Otherwise, the execs try to do their best to keep it low key as one of the unique aspects is the fact that they bring their families along and the spouses and kids are entertained just as much as the execs.

Open source marketing -- Sugarshots campaign

On an earlier post, I introduced my notion of an Open Source Marketing campaign. iMedia has taken that idea and run with it. The latest article in the series starts to expand what's been done thus far from a focus on media to a broader marketing focus. Since the kick-off of the first campaign with Sugarshots, momentum has picked up including feedback from two people who have talked up Open Source Marketing. Joseph Jaffe who mentions Open Source Marketing in his Life after the 30-second spot book that is climbing the charts of business book sales and James Chertoff who coined the term in his Open Source Marketing manifesto. The article ends with a shout-out to Joseph, James Chertoff and Steve Rubel (who has also spoken of Open Source Marketing and Open Source Press Releases) to weigh in with their thoughts. Hopefull Joseph, James, Steve and others do this along with many others (that includes you).

Partner leverage and reminders

Ed Sim has some good tips and reminders in making the most of partner relationships. Some of these are super critical for startups since partnering can burn through a lot of cycles when resources are most crunched.

What's a "reverse merger" or "backdoor IPO"?

Those were questions I used to ask. Fred Wilson has a good explanation of not only what they are but the caveats associated with them.

Excellent series on deal terms, board compensation, etc.

Brad Feld of Mobius Venture Capital has done a great job of raising issues and sharing experiences with various elements of a VC term sheet with a balanced perspective. So far, here's what he has...

Brad claims the list is complete (one update below)...

• Conversion
• Liquidation Preference
  
• Price
  
• Redemption Rights
  
• Dividends
  
• Pay to Play
  
• Anti-dilution
  
• Protective Provisions
  
• Board of Directors
• Conditions Precedent to Financing
• Vesting
• Information and Registration Rights
• Right of First Refusal
• Voting Rights and Employee Pool
• Board compensation
• Update: Restriction on Sales, Proprietary Inventions, and Co-Sale Agreement
  

Housevalues looking for VP of Marketing

Here's a chance to build a brand for a company yet to put significant focus in that area yet they are highly profitable and rapidly growing. The job is working for my friend Ian Morris -- a great guy to work with and for.

Here's the job summary: Reporting to the President & COO, the VP of Marketing is responsible for strategic and operational management of the comprehensive set of marketing functions including lead generation and customer acquisition campaigns, marketing communications, public relations and will lead and execute the effort to define HouseValue’s branding to our constituencies and the execution of that brand throughout the internal HouseValues organization.

If you want more details on the job, let me know. I have the full job description.

Ramping up on a new technology

Tim Oren has a good post on how to efficiently ramp up in a market/technology. As a venture consultant, I have to do this all the time. Same is true for VCs, someone taking a new job, etc.

Enterprise Sales Learning Curve and the Smart Energy sector

An article I wrote for the Center for Smart Energy (run by the well regarded industry analyst/pundit Jesse Berst) is post here. There has been a lot of press attention on the rise of venture investment in the "clean technology" sector. Much of these have business ecosystems that are far from the experience/contact base of technology industry veterans. In contrast, there's much to leverage from the technology arena into the emerging "Smart Energy" market. Learn more at the Center for Smart Energy's website.

Open source marketing

As a result of my work for iMedia Communications and my past board role with the Interactive Advertising Bureau (IAB), I came up with an idea to have much more open and useful case studies of marketing campaigns that would not only speak to the "why" of Internet advertising & marketing but also to the "how". I thought I'd coined the term "open source marketing" until I did some digging around. I didn't want to be the "Al Gore" of Internet marketing and imply that I'd invented something that was already around. While it certainly hasn't hit the mainstream media, you know the term is hardly a secret when Robert Scoble and Steve Rubel post about it here and here. There's even been a "ChangeThis" manifesto published with the term. I pitched my vision of what an Open Source Marketing campaign would be to iMedia and they bit hard and have launched a new series.

The first example is a company called SugarShots. The hub for the campaign is interesting. It lays out what the marketers' goals are and then is giving a blow by blow of the strategy behind the campaign. With that introduction, they are now in the process of sharing the ongoing results. In addition, you have thought leaders from the Internet marketing community such as Doug Weaver and Eric Torres adding their perspective and analysis.

It should be interesting to see how this concept catches on.


The following is the republished iMedia article introducing the rationale for an Open Source Marketing campaign that I wrote:

Seth Godin recently wrote a book entitled "All Marketers are Liars" but the subtitle ("The Power of Telling Authentic Stories in a Low-Trust World") captures the real issue of why to pursue an open source marketing plan. Furthermore, in this age of blogging and Sarbanes-Oxley, corporate transparency is de rigeur.

Any corporation that has an offering that doesn't require trickery to sell should embrace the idea of "opening the kimono" on portions of their marketing plan, so long as they have other elements of their strategy that give them competitive advantage (and thus don't want to share with their competition). In addition, marketing departments are expected to be accountable more than ever before -- both to their shareholders and even their customers. With this backdrop, it stands to reason that virtually any marketer would be interested in a case study that shared unprecedented levels of results and background that proved (or disproved) various elements of the marketing mix.

Why not an open source marketing plan?

The notion of open source marketing borrows from how open-source software projects (such as Linux) have developed. With open source software, developers collaborate to make a compelling piece of software. Likewise, an open source marketing plan should develop a compelling marketing campaign that leverages the talents of the marketing community and, increasingly, the product's own customers. For a recent example, see Joseph Jaffe new book, "Life After the 30 Second Spot," where he discusses the strong trend of customer-created marketing.

Plans could be developed in both the commercial and non-profit worlds, bringing together appropriately experienced and passionate marketers and customers. Obviously, the definition of open source marketing will evolve over time, but as the person who coined the phrase -- at least within the iMedia community -- here are my thoughts:

• The project leader would define the overall goals that the marketing campaign is intended to achieve. In addition, they'd develop a "creative brief" that would outline more details on the organization's target customers and the actions the project leader wants prospective and current customers to take. The leader would also disclose his initial thoughts for various marketing tactics that would be considered a "stake in the sand" to start generating ideas.
• Once the project leader shares the above information, the marketing community will get engaged by sharing their ideas and building off of other ideas.
• The project leader/team would then be responsible for coalescing the feedback into an initial plan that gets put into action. This is where the real work begins as learning starts to take place.
• A communications tool -- such as this newsletter or a blog -- will communicate ongoing campaign results, insights and course corrections. Through this process, the entire marketing community can benefit from the collective input and learnings. Undoubtedly, there will be active debate on how to evolve based on the results.

Wise crowds

The concept of an open-source marketing plan also borrows heavily from the ideas outlined in James Surowiecki's "The Wisdom of Crowds: Why the Many Are Smarter than the Few and How Collective Wisdom Shapes Business, Economies, Societies and Nations." (You can read my iMedia Book Club review of it here.) The author outlines four elements required to have a wise crowd:

• Diversity of opinion: each person should have private information even if it's just an eccentric interpretation of the known facts.
• Independence: people's opinions aren't determined by the opinions of those around them.
• Decentralization: people are able to specialize and draw on local knowledge.
• Aggregation: some mechanism exists for turning private judgments into a collective decision.

Why it's important to share details -- some background

My thinking about open source marketing goes back to when I was working on behalf of iMedia to look at what was holding back the interactive marketing industry's growth -- recognizing there was a major disparity between media consumption and media spend.

iMedia has a somewhat similar mission to the Interactive Advertising Bureau, where I'd previously been the Chairman of the IAB's Chief Marketing Officer (CMO) council. Here is iMedia's mission statement:

To advance the business of interactive media and marketing by serving as the primary conduit between buyers and sellers. And, to inspire marketers of all types to explore and embrace interactive marketing strategies.

After speaking with dozens of CMOs, agency heads and media publishers, one of the key findings was that decision makers -- while they found studies such as the Cross Media Optimization Studies to be useful in understanding the appropriate weight for online media -- wanted the strategy and detailed results behind the topline results that were shared. Unfortunately, the brands (Ford, Universal, Unilever, McDonald's, et cetera) that participated in these studies weren't interested in sharing details.

Sugarshots steps up

After my experience with XMOS, my question became "which marketer would be willing to share more details?"

Since I spend the vast majority of my time studying and working with emerging businesses, I felt some of these companies might be willing to share in a quid pro quo exchange for some free exposure and opportunity to tap some of the leading minds in the marketing world. One such company has stepped forward -- Sugarshots, the test brand for iMedia's first open source marketing case study.

Sugarshots is a player in the Consumer Packaged Goods Industry selling premium liquid cane sugar specifically formulated to sweeten gourmet coffee, tea -- just about anything -- better than granulated sugar.

People often ask Sugarshots how they came up with this idea -- liquid cane sugar. Like countless other people everyday, the founders were literally having lunch one day and we started complaining about the sugar sitting idle at the bottom of their iced teas. But what choice did they have? Expose their bodies to artificial sweeteners with their saccharines and phenylalanines? All for what? Dissolvability? Fewer calories? There had to be a better way. So they looked for a better way and found nothing. Like many entrepreneurs before them, they decided to build a business to solve that problem.

Sugarshots has taken that entrepreneurial sense of adventure and boldly agreed to be a pioneer in "open source marketing." They have agreed to share some of their key marketing goals as well as their initial thoughts in key areas of their marketing mix. The goal of sharing those goals with the marketing community is to give marketing thought leaders enough information to provide recommendations.

The virtual marketing team will embrace and synthesize the strategy recommendations into an ongoing marketing campaign that we'll continue to report on and evolve the marketing strategies based on what does and doesn't work.

The question now becomes: will the marketing community embrace this collaborative effort?

My hope is that the collaborative spirit that is present at iMedia Summits will extend itself into this realm.

I hope you prove me right, as it will be a fun ride.

Underdelivered VC cliche: Roll up our sleeves

Fred Wilson (a NY-based VC) highlights how most VCs talk a good game about rolling up their sleeves to help out their portfolio companies but few deliver. Fred makes a good case why he strives to be an exception. I've observed the exactly same thing. While I think most VCs have the best intentions, they simply don't have (or make) the bandwidth to really roll up their sleeves (between wading through their deal flow, board meetings, etc. they run out of time). This leaves an opportunity open for venture consultants like Altus Alliance. We've consistently found that entrepreneurs are willing to have venture consultants earn sweat equity by rolling up their sleeves whether it's to play an acting executive role such as a VP of Business Development/Sales or CFO. There's often a point where the founders are overwhelmed yet the time isn't right (or the funding isn't there yet) to hire a full complement of staff. In addition, the talent that is willing to work at a company at that stage is usually less experienced than what a strong venture consulting firm can offer.

Healthcare Dot-Com Era?

Is Healthcare IT investment activity about to tick up? This Business Week post suggests that is happening. Having spent many years in Healthcare IT, I've always had a lot of trepidation about software companies in this arena (I haven't touched the medical device space arena as I know very little about that segment of the market). Why the trepidation? It's a paradoxical market where cutting edge technology is used on the medical side of things, it's in the twilight zone from an information technology perspective. Various federal mandates like HIPAA have provided some impetus for automation but things still move slowly. I believe there are a few factors that have gated IT adoption in the past.

• The "cost-plus" billing model bred inefficiency that wasn't penalized for a long time. The other side of that coin was that it didn't attract (for the most part) the best and brightest in the IT world.
  
• There are additional factors such as risk aversion due to the stakes being high if mistakes are made. I used to tell my colleagues at Microsoft that while some markets claimed they had mission critical system requirements, healthcare had life critical requirements. The unfortunate thing is that thousands die each year due to avoidable mistakes such as systems to avoid negative drug-drug interactions. Even if there was a flaw from time to time with a computer system, I think it would be the equivalent of a plane crash where it only happens rarely but it causes disproportionate fear.
  
• Yet another factor impairing technology adoption is seasoned MDs hold a lot of power at hospitals so a group that is relatively computer-phobic can refuse to use technology. Since they are usually independent from the hospital and the hospital is dependent on them for their business, it puts them in a tough position.

With all of those barriers, one has to look at opportunities very carefully. Ultimately, someone will figure it out. One way it may get rolling is new models for healthcare delivery that don't have legacy issues. An example is some of what Steve Case is working on as reported in the NY Times with this "Revolution" venture (sub req).

If you lie down with dogs, you'll come up with fleas

Whether it's hiring employees, deciding whether to work for a jerk to get a "dream job", who you co-invest with, this is always a cliche worth remembering. Fred Wilson expounds on this cliche.

Can VCs and Angels get along?

There's been a bit of non-news news about how VCs and angels feel about each other. Brad Feld has another good post sharing his experiences on both sides of the equation while also showing how the "news" has been purposely provocative when there wasn't much news to begin with. He shares some good words of wisdom.

Update: Fred Wilson, another seasoned VC, adds his two bits with comments strongly in favor of the value of angels.

Enterprise Sales Learning Curve update

Given the strong feedback we received for more information on the Sales Learning Curve framework Mark Leslie presented at the Altus Alliance CEO briefing, I will provide an update periodically on the latest information regarding the Sales Learning Curve. The following are updates since that event:

• Mark’s presentation and whitepaper was posted on this page.
• Mark now refers to his framework as the Enterprise Sales Learning Curve (ESLC) to indicate that it’s the entire enterprise (not just Sales) that goes through the learning curve.
• Altus has conducted a couple ESLC Assessments with clients and received very positive feedback on how they are helping focus the company’s energies towards what’s going to maximize their sales yield. As an extension of that, Altus has also developed a simulation tool that aids decision-making in how to allocate finite company resources. The tool was built using a modeling technique called System Dynamics (click here for background on Systems Dynamics if you aren’t familiar with that approach). It’s been a great tool to discuss trade-offs in alternative strategies. We developed it in conjunction with Greer Black Company.
  
• An article was written in the leading digital media marketing publication about the Sales Learning Curve.
• Search engines are starting to pick up more articles and insights around the ESLC. Here’s what Google, MSN and Yahoo have.
• We are working with an institutional investor on incorporating an ESLC Assessment into their due diligence process as they see how it can be a better predictor of success than what they’ve done historically. Conversely, we have a client starting their next fundraising round and they are using the ESLC Assessment as a preparation tool for that process.

After the event, the quote I liked best was from a serial entrepreneur –

“I thought that the talk was nothing short of excellent. Often those things are lame-o and I will tell you that this was top 1%. Thanks again for including us. Do you have the deck? We would love to see it.”

Those types of events are a lot of work but that kind of feedback makes it worth it. We hope to do another event down the road but are focused on putting the ESLC through its paces in the meantime.

Digital Media Costs Rising High

Rishad Tobaccowala, chief innovation officer at Publicis Groupe Media and president of SMG Next always seems to have a bead on where things are headed in digital media (e.g., he was well ahead of the curve on the rise of streaming video ads). He provides a view into the rising costs of digital media on the horizon in this article.

Is the Venture business permanently a seller's market

Bill Burnham has that thesis that's worth a read...

While deal flow undoubtedly remains an important part of venture capital, changes in the venture industry are making deal flow far less important and rapidly making deal flow-centric business models unsustainable for all but a few venture firms...Net, net the cold reality is that the venture business is now clearly and permanently a seller’s market.

Bill does a nice job of laying out the changes that have taken place in the last 20 years that lead to this thesis. Though we hadn't thought about it in these terms, it validates the approach my firm has taken. As most of our clients are post-angel and pre-institutional from a funding perspective, it's common for us to play a "matchmaker" with VCs and private equity firms. Our value-add, beyond having the contacts, is understanding the expertise of the funders. As has often been said, it's always better to have "smart money" whether it's angels or institutional investors. They not only can provide operational guidance, but they can also help find future funders/acquirers.

Milestone birthday today

I used my "milestone" birthday (I'll let you guess which one) to run my first race in nearly 20 years. This living in the mountains thing is paying off. Though I'm running about 1/3 of the miles I did 20 years ago, I ran about as fast and managed to come in 4th in the race. It was a hilly course and I realized I haven't been running down hills much of late -- it uses different muscles to say the least! I have to admit it got my competitive juices flowing. Most (all?) of those competitive juices have been directed towards brain (i.e., work) rather than physical activities the last 20 years. I think I'm going have to balance them out.

Google's moves & 2010 predictions

Earlier in the year, these 2010 predictions about Google were made in an iMedia article. Charlene Li has some updates on what Google is up to and speculates on what Yahoo & MSN might do to respond. This post also has a related update on internet ad techniques moving offline.

Jeff Nolan's blog from a corporate VC

Most of us have seen the news accounts of the rise of corporate VC investments after being dormant for awhile. There are plenty of VC blogs from traditional VCs -- Martin Tobias, Ed Sim, Tim Oren, Fred Wilson, Brad Feld, Rich Tong & John Zagula, etc. To date, I haven't seen many blogs from Corporate VCs. Jeff Nolan has a good one. He's with SAP Ventures.

3 stages of truth (or a startup)

The 3 Stages of Truth by Arthur Schopenhauer (German Philosopher)

• First, it is ridiculed
• Second, it is violently opposed
• Finally, it is accepted as self-evident
  

It’s no secret that most startups see an opportunity most others have missed so it’s inevitable that they’ll get a reaction that follows this quote.

Enterprise Ireland

I was meeting with Bill Shaughnessy this week (he runs most of business & strategy side MSN's communications services such as Hotmail, MSN Spaces, Messenger, etc. -- great guy who is one of the most "authentic" people I've worked with at Microsoft). We had a wide-ranging discussion but the part that I can share was his commentary on his participation with Enterprise Ireland. There was a trade mission led by the President of Ireland to promote what is going on in Ireland. In the last 20 years, there's been an amazing transformation of Ireland into a thriving, tech-oriented economy. Ireland now has the highest per capita income in Europe after Luxembourg. Considering they were one of the poorest countries not long ago, that amazed me. Apparently, the some of the millions who left Ireland are now coming back. Among their objectives of the trade mission was to promote their companies' products in the states and encourage people to come work in Ireland. I bet I'm not the only person of Irish heritage that would be intrigued by the idea of working with or in Irish companies. My only wonder is when stuff would get done their gift of the gab :) I was watching a 60 Minutes segment this week on Rick Steves. At the end of the segment, they asked for word associations for several different countries. The last one they asked him about was Ireland. He paused and then said "lots of talking, lots of beer, lots of love". Worse things have been said about a country!

Free advice for startups

While you should be careful to not abuse the kindness of others, I've found that the top notch service providers that I work with are often happy to grab a coffee with early stage companies. Even if you've been through the process of growing a company from scratch, there are always new things to learn. Of course, all of these firms would love to have you as a paying client (assuming a fit), one way they demonstrate their value is by sharing tidbits of expertise over informal meetings. One of the reasons, we have "Alliance" in our company name is that we find great value in aligning with top notch complementary service providers that share experience and a business model that's advantageous for startups and save a bunch of money in the process.

I'm always thrilled to send business in the direction of these sorts of firms. Some examples (not comprehensive) that provide most of their services in the Pacific Northwest include the following:

• Commercial Real Estate: Broderick Group (Paul Sweeney and Jeff Watson), Washington Partners (Pat Pendergast)
• Legal experts: Beacon Law Advisors (Chris Hurley and Ian Thompson), Dorsey Whitney (Mike Brown -- despite his expression in his pic, Mike's a great guy that smiles a lot :))
• Financial and Acting CFO services: Foster & Co (Cortney Foster), Tatum Partners (Chuck Gottschalk), SmartStarters (Doug Woodward)
  
• Equipment Financing: Vencore (Chris Fenner), Sound Leasing (Brian Hill)
  
• Web Hosting: Savvis Seattle (Dan Marsh) -- learn from some of the successes mistakes from similar companies
  

Aligning interests

I had my quarterly meeting with my financial guy this week. I work with a guy named Brian Vowinkel at Lydian (great guys if you a looking for someone to provide financial mgmt services in a way that their interests are aligned with their clients). It reminded me of how strongly I believe in the idea of aligning financial interests. This often doesn't happen whether you are talking about financial advisors, client-consultant relations or business partnerships. I've found that long-term satisfaction with any of these relationships eventually breaks down without the aligned interests. It's something to both look in the mirror and look at whether your "partner" is in with the same spirit.

Signature Destinations Club advisory board meeting

From time to time, I participate in my client's advisory boards. Unfortunately, not all are as productive as the one I participated in yesterday. Not only were the 2 co-founders great about having a tight agenda and sticking to it, they've done a nice job of selecting their advisory board. The best of these boards have diverse experiences that are brought to the table but with personalities that focused, driven and fun to work with. While it's relatively easy to find the right backgrounds to complement each other, finding the "softer" skills really makes a big difference. While there were plenty of areas where there wasn't unanimity, the make-up of the group was to pull the best from everyone's ideas to come up with something that was better than any one person could have come up with.

The members of the advisory board include the following people:

• Larry Gildersleve -- vacation industry veteran
• Ian Morris -- HouseValues CEO and Microsoft veteran
• Dave Jones -- Managing Partner of Altus Alliance
• Tom Poole -- serial entrepreneur and consultant
• Chris Hurley -- founder of Beacon Law Advisors

Nice job Chad & Brian!

Keiretsu Forum

The Keiretsu Forum (angel organization) is kicking off their organization in the Pacific Northwest. They had some events on Thursday that we attended to learn more. Their story seemed strong in terms of their track record. For example, they claim 100% of the companies that pass their screening receive some funding from a Keiretsu Forum member. The other unique angle was their membership requirement of having no more than 10% service provider or venture capital as part of their membership. From my observation, that's been a key weakness of other angel alliances I've participated in. There weren't many true angel investors. The service providers were looking for clients and the VCs were looking to find an early view into a company. I'd be curious if you have had any experience with them or have heard much about their reputation. Feel free to post a comment.

Common sense

“Common sense isn’t all that common” - voltaire

The failure of comparison

“Comparison, a great teacher once told me, is the cardinal sin of modern life. It traps us in a game that we can't win. Once we define ourselves in terms of others, we lose the freedom to shape our own lives. The Holy Grail can be found only by those who lead their own lives.”

While this is a quote applied to individuals, I think it applies well into business as well. The winners I've observed or been a part of redefine the rules rather than just follow others in the market. They also aren't solely focused on beating their competition. Rather, they are thinking about their customers and their needs -- kind of obvious but often forgotten.

Bryan Mistele (Inrix CEO) on licensing IP from Microsoft

Not long ago, Microsoft announced they were going to make their intellectual property more available through a new group called Microsoft Intellectual Property Ventures. The Seattle area’s largest A round in the last year went to the first licensee of this new effort (Inrix). It’s worth taking note when something as significant as that happens so thought it was worth sitting down with the CEO of Inrix (Bryan P. Mistele). I also conducted an interview with David Kaefer of Microsoft Intellectual Property licensing group. That interview is here.

Chase Market Velocity (CMV): Start to finish, how long was the process of working with Microsoft’s Intellectual Property (IP) team?

Bryan P. Mistele (BPM): We started engaging with Microsoft in November and closed our deal the middle of February. Subtract the two weeks at Christmas and that would mean it took us 3 months from start to finish. Overall, I was impressed with how fast Microsoft could move.

CMV: Was the fact that you were ex-Microsoft make a difference in making the deal happen? If you were an ex-Sun employee, how different do you think it would be?

BPM: Being an ex-Microsoftie made a big difference. I could speak the language, the technical due diligence went a lot easier, I knew many of the people involved and was perceived as a “friendly” party. If I was ex-Sun, it would have been harder – not because Microsoft would have anything against an ex-Sun person, but because they probably wouldn’t have the same network and as with any business deal, who you know is as important as what you know. This was especially true since we were the first company to do this. Now that they have a program established, a team helping facilitate these IP discussions, I imagine future companies (and independent companies) will find the process much easier.

CMV: Are there any other technologies that you are considering licensing from Microsoft?

BPM: The Microsoft Research team is continuing to do leading-edge research into the areas of traffic analysis and prediction. Some of this work we will be able to take advantage of for free under our agreement, some of it we may choose to license at some point in the future.

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

BPM: Microsoft maintained ownership of the patents themselves and the responsibility for prosecution. We have perpetual rights to these and derivative patents. If there is a dispute with a 3^rd party over these patents, it will naturally be between Microsoft and that 3^rd party.

CMV: Was any kind of market validation done on the technology beyond the internal "beta" of Microsoft employees using the technology?

BPM: Inrix did do quite a bit of diligence on the “market opportunity” – meaning we contacted many potential customers across a variety of channels to validate interest, the opportunity, the perceived value of the predictive capabilities and our overall business strategy. These conversations led directly to the development of our business plan, pricing model and gave us a good deal of comfort about the assumptions we had made regarding the competitive landscape.

CMV: How did the VCs that funded/didn't fund look at the fact that you were licensing IP from MS?

BPM: 90+% of the VC’s we talked to viewed the Microsoft connection as extremely positive – it provided us a level of credibility around the technology and science that as a startup we wouldn’t have achieved otherwise. More importantly, it provided us the opportunity to come to market very rapidly (within months of closing our Series A), which is very unique for a startup. We view this as one of the main advantages of having licensing IP from Microsoft. Some VC’s (especially in the bay area), had concerns about Microsoft and didn’t believe Microsoft was opening up to licensing IP.

CMV: Did you ever talk about Microsoft’s Corp VC fund investing in Inrix?

BPM: In our initial conversation, we decided not to pursue this. We felt it would be more advantageous for Inrix to be perceived as an independent company rather than a Microsoft-controlled entity because our potential customers included folks like Google, Yahoo, MapQuest, etc. which might have concerns working with a Microsoft-affiliated entity.

CMV: How will the researchers who developed the technology be available to you? Beyond paying royalties, is there any ongoing involvement by MS?

BPM: There is a good period of time where the Microsoft researchers will continue to be available to us to successfully transfer the technology, answer questions, brainstorm, debug issues, etc. Our overall goal in structuring our relationship was to create a scenario whereby both companies would be motivated to make Inrix a success. Therefore, even beyond the contractual obligations, we feel Microsoft will make every effort to help Inrix become a success because it’s in their best interest to do so.

CMV: Are there any requirements that you continue development on a MS platform?

BPM: No.

CMV: What was the purpose of the Microsoft conference you just attended? From what you could tell, what kind of people attended?

BPM: The Microsoft VC Summit is a combination of Microsoft executives and VC’s. It is an annual event where Microsoft reaches out to the VC community to help build better relationships, explain Microsoft’s roadmap and look for potential areas to work together. Inrix was asked to attend because this year IP Licensing was a big, new initiative for Microsoft and we were the first company to license technology from Microsoft. As such, we had a good opportunity to explain to the VC community how great it was to work with Microsoft and the benefits of doing so.

Interview with David Kaefer of Microsoft's IP Licensing group

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 http://www.microsoftipventures.com.

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.

Why eBay, Monster and others business models will come under further attack

PubSub founder Bob Wyman makes a compelling argument about how eBay, Monster, MeetUp and many others have a business model that will come under attack once the "Gray Web" is diminished in scope. He defines the Gray Web as something between the "visible web" that is well-covered by mainstream search engines and the "hidden web". That is, there are pages that are visible but aren't usefully indexed by search engines today. Long-term, virtually any web directory will threatened by the removal of the so-called Gray Web. That's not to say that there won't be other ways to grow their business but the "old" way will eventually wane. Years ago, Bob and I had some overlap in dealing with "solution provider" partners at Microsoft -- he was one of the few product group people who had a grounding in both his product and the business realities our enterprise customers/partners faced. It looks like he's still on his game.

Mark Leslie & Charles Holloway's Enterprise Sales Learning Curve

Stanford Graduate School of Business colleagues Mark Leslie (former CEO of Veritas who grew it to over $1B in sales) and Charles Holloway (sits in the Kleiner Perkins endowed chair) have collaborated on a framework Mark had put into practice at Veritas. They refer to it as the Enterprise Sales Learning Curve. Mark has been regularly speaking at industry events and with VC's and has received universally positive feedback about the impact of the framework he's proferred. This article defines what the Enterprise Sales Learning Curve is and how to apply it.

Why Are Startups Like Peacocks?

Kevin Laws' (an investor at PacRim Venture Partners) post points out the importance of getting your first paying customer in terms of perceived company value. This is in addition to the organizational learning benefits gained from initial customers that Mark Leslie points out so well in the Enterprise Sales Learning Curve framework he's proffered.

The cost of fundraising

Ed Sim makes a good point about the opportunity cost of time spent fundraising. He echoes what I’ve heard Mark Leslie (ex Veritas Chairman/CEO) say that when there’s a positive outcome with an exit (IPO, merger, etc.) no one complains about their percentage of the company and conversely when there is a bad outcome it doesn’t matter whether you had 2% or 20% of the company.

Book review: Wisdom of Crowds

I liked this book so much I wrote a book review for iMedia on it. You can get it here -- Wisdom of Crowds.

If you look beneath the surface of some successful companies, you'll see they employ strategies espoused in James Surowiecki's book. A great example is a company run by my friend Ian Morris -- the CEO of HouseValues. There's much more than meets the eye that drives their success.

Update: CNET has an article on Blogs, social networks and wikis that are other great examples of the "wisdom of crowds".

Hygrids -- new term from Wired

You've heard of hybrids...now hygrids is the term Wired coined for homes that mix self-generated energy (solar, wind, etc.) with grid-based energy. Solar seems to be going through a Moore's Law-like transformation.

The Meatrix - Viral marketing still works

This Matrix-themed "documentary" once again proves that viral marketing can work. In this case, it's an entertaining and damning view of the meat industry. It recently won a Webby.

Is Google the next Netscape? More like the next Microsoft...

Update: I posted this in the Spring. Looks like the NY Times has a similar POV (reg req'd - free).

There's been a lot written about Google being the next Netscape but I think it's closer to being another Microsoft though still a long ways from having MSFT's scale and breadth. I saw MSFT transition from early adolescence to adulthood (I was there from the early 90's until a couple years ago). I'd consider Google to be in early adolescence. Thinking back on that stage of MS' development, there are striking parallels with what made MS a success or were attributes of the company. Some of these bode well for Google while others are ones that Google would be well-advised to learn from Microsoft's missteps. Here's a (growing -- thanks to all the input I've received) list of some of the similarities ranging from small coincidences to core cultural issues...

1. Both were lionized in the press during "adolescence" -- go back and read Business Week, Forbes, etc. and similar gushing articles being written about Microsoft/Bill in the late 80's/early 90's. These are being re-written for Google.
   
2. They both thought they were going to build business one way and hit it big with another. Google was going to search corporate sites while MSFT was started as a programming language company.
3. Both businesses were profitable relatively early in their existence for a tech business.
4. Both had two geeky founders who attended the same top schools and decided to start a company together.
5. Big partner(s) make Microsoft/Google when they were tiny and their large company partner decides they rather partner to get a piece of technology rather than build what they perceived to be "non-strategic" technology that turns out to be strategic after all. They regret it later when they have to go compete with the company they enabled. In Microsoft's case it was IBM. In Google's case, it was Yahoo and AOL that "made" them. Read here for an interesting critique of Yahoo's competition with Google. [My POV is that Yahoo will have more long-term success against Microsoft as they have both the technology acumen AND they fully understand marketing, the media business and the value of relationship selling.]
6. Google and Microsoft learned the value of ‘efficient distribution’ early. Google got to critical mass partly w/ the AOL deal, but partly by doing revenue shares on ads on partner sites that put 50% to 100% of revenue in the pockets of the affiliates. With ads as a secondary revenue stream, Google knew that they could acquire traffic cost-effectively in this way (low-cost distribution), which would in turn boost queries, which would in turn grow their top revenue stream – keyword sales. By contrast, Microsoft used the OEM channel – with very favorable deals granted to folks like IBM –to distribute efficiently. [Thanks to Microsoft veteran Craig Bartholomew for this one]
   
7. Being product/tech centric is sufficient for success in early adolescence but not enough later. This is just starting to play out with Google whereas Microsoft has been gradually learning this lesson. I wrote about this in my Ballmer finally gets it post. Founders at both companies apparently had/have little grasp of the value/impact of relationship selling during their adolescence years.
   
8. Both Microsoft and Google put out incomplete products with intent to rapidly evolve until they get it right.
   
9. Perceived arrogance starts to chip away at their media darling status.
10. Both play by their own rules to redefine their industry.
    
11. Both are effective at thinking long-term.
12. Both operated as mysterious "closed societies" into their adolescence with lots of conspiracy theories being cooked up about what they were/are up to. [See comment at the end of this post highlighting how MSFT is no longer a "closed society"]
    
13. Both have bold, audacious goals -- Microsoft wanted to have a computer on every desktop which sounded ludicrous in the mid-70's while Google's goal of organizing the world's information sounds similarly ludicrous when you consider their scope. Both will probably achieve their stated goal.
    
14. Neither organization thinks of themselves as "evil" but increasingly perceived as such as they move into adolescence. A recent example is the hullabaloo about Google's Autolink feature. First, Steve Rubel started a stir when he said that Google is doing something similar to Microsoft SmartTags. I also saw Dave Winer talked several times about this issue in the past few days. Robert Scoble also did a nice job of recapping the issue, history and response from Google here.
    
15. At similar stages, they were/are hot places to work with individual autonomy pulling many graduates from the world's top universities. Both place a premium on talent and have gained reputations for their grueling hiring processes.
16. Both are accused of "master plan" when individual projects are much less coordinated than people thought/think.

While Google has tried to contrast themselves with Microsoft, it's interesting to looking at the similarities. What else do you see in common? Add your comments below.

Time will tell whether Google is more or less like Microsoft which will make for interesting punditry. Here's a few articles looking at this issue.

• This guy thinks Google isn't the next MSFT
• This article has fun with Google's desire to not be "evil" with the insinuation that MSFT is "evil".
  
• What Google has learned from Netscape about competing against Microsoft.
• Fred Wilson of Flatiron Partners comments on Google being like Starbucks
• John Battelle comments on Is Google a leader contrasting with Microsoft
  

A few more came to my attention after the original post (seems like it's sport to compare Google to just about any successful corporation)

• Fortune on Gates & Google
• Wired on Why Google is like Wal-Mart
• Jeff Jarvis comparing Google to AOL
  

The only thing that matters to my clients is ways they can reduce collateral damage or better yet, be like one of those birds that feeds off the hippo. Understanding how Google is likely to progress given their mindset and studying history is what I advise my clients. It will be interesting to see if/when Google can no longer roll out stuff in a stealth mode. Microsoft is so scrutinized that they no longer can do that -- every move is reported. Rich Tong (a founding partner at Ignition Partners -- a VC firm) who was at Microsoft in a similar timeframe to me commented on Google rate of product rollout and ability to operate under the radar which MSFT could do at one time.

After writing the previous comments, a firestorm of sorts hit Microsoft around whether it would/wouldn't support legislation in the state of Washington related to gay rights. What's relevant to this post is how Microsoft was once a "closed society" much like Google is today. They thought it was "none of your business" to know the inner workings of the company. It was late to realize that increased transparency would be an asset rather than a liability -- certainly Robert Scoble is a great example of that. Google has already fallen into the same "none of your business" trap Microsoft fell into earlier in its history. I can't imagine Google having employees embrace the transparency in the way Microsoft has as evidenced by this latest firestorm. Check out these links for an example of corporate transparency -- it's a bit like finally getting inside a sausage factory. Though it's not pretty, it's the reality.

• The Scobleizer has several posts and dozens of comments at his blog.
  
• Robert Scoble's boss also has some related comments.
• You know transparency is working when you have a Sun employee finally realizing Microsoft isn't much different than other tech companies in terms of its people and policies. It just has had the fortunate/unfortunate experience of being in an extremely strong position which further opens you to criticism particularly when past practices have raised people's ire.
  

Licensable IP from Microsoft driving VC funding

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. 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.

GE: going green for green

When a noted non-green corporation such as GE sees profit in "green" businesses, you know that profit potential is driving green businesses more than just regulation. While they aren't the first, I'm sure other corporations will take note since GE is so highly respected by their peers. I'm starting to see a trend of those historically on opposite ends of the political spectrum finding common ground surrounding clean energy...

• In Oregon, a far left and far right legislator team up on biofuels legislation.
• The Economist reports in their "Rethinking the Axis of Oil" article about the growing alliance between defense hawks with enviro greens to completely rethink America’s energy strategy which will force the White House to play catch-up.
• "Set America Free" group combines noted liberals & conservatives with their recently published "blueprint" for Energy Security.
• Senators Larry Craig (R-ID) and Maria Cantwell (D-WA) are teaming up to get loan guarantees for the world’s first commercial scale cellulose ethanol (this process uses farm waste such as wheat straw) plant to be built in Idaho.

One of the reasons I've thrown my support behind the non-profit Climate Solutions is they have been effective at finding bi-partisan common ground (e.g., with the Harvesting Clean Energy program) to provide economic development support supporting clean energy based businesses. For example last week, I spent a day with Climate Solutions' Executive Director (Rhys Roth) and many of the leaders in Idaho's Republican delegation exposing them to what Climate Solutions is working on. Even though some don't necessarily believe in climate change, they don't have to in order to see the economic development opportunities. We all left the meetings excited about the opportunity to collaborate. For example, the so-called Smart Energy field is already a $2B business in the Northwest (collective annual revenues) and poised to rapidly grow. Read the whitepaper Poised for Profit II - Prospects for the Smart Energy Sector in the Northwest for more details.

Video file sharing activity on the rise

Mike Homer of Netscape fame is behind a new non-profit organization -- the Open Media Network reported on here.

The nonprofit network is designed to be an outlet for anyone who creates audiovisual works, be it an independent filmmaker, a public-television station or a hobbyist with a camera or a microphone. The effort tries to tap the growth in noncommercial and grass-roots media epitomized by Web logs, the personal Web sites frequently updated with fresh reporting, commentary and creativity.

It's a clever approach that would have the benefit of increasing demand for tools such as those that come from Kontiki where he's the CEO. [Full disclosure, Kontiki is part of Altus Alliance's client portfolio]

Corporate VCs: Once burned, not shy

Despite the fact that many corporations that were active VCs in the boom boom years got burned, they are once again increasing their venture investment though typically in 2nd round deals.

Advertisers pay less for good advertising

NY Times (reg req) reports on the 4A's (American Association of Advertising Agencies) conference. One of the speakers proposed a new way to charge for advertising that rewards effective ads. Google claims its already doing this which is consistent with some of the predictions made in the 2010 predictions article in iMedia Connection. As the accountability of online trickles into TV, I'm sure we'll see lots of creativity as TV dollars are under attack. For example, Charlene Li of Forrester reports on "whys" behind their latest online ad market forecast which shows amazing growth at the expense of "traditional" media.

Does Your Startup Measure Up from a candidate's standpoint

Fast Company reviews a book ("Sizing Up a Start-Up") written by Dan Rippy -- the husband of a friend and former colleague (Laura Rippy). Dan writes it from the perspective of a candidate. Laura was the founder of HomeAdvisor (later sold in part to Freddie Mac and the consumer portion become a part of MSN) and former CEO of Handango. Dan and Laura are a great/fun couple who also happen to be smart people.

Level the playing field with blogs

Emerging/small businesses with tight marketing budgets should be on the lookout for efficient marketing tools -- blogging can be one of those sorts of tools. The San Francisco Chronicle has a two-part story on how blogs level the playing field for smaller firms.

Search marketing tips from Search guru Kevin Lee

Kevin Lee from Did-It shared these tips at the Search Engine Strategies conference. He always has sage advice whenever we've chatted.

Google, Yahoo, MSN, and AOL are the places you need to concentrate your efforts. At every instant throughout every day each bid can be only too high, too low or just right. There are many PPC budgets; (1) pure direct marketer, search budget is "carte blanche"; (2) fixed budget marketer, (3) cross media or hybrid marketing budget. The first mistake made by marketers when doing SEM is forgetting to think like their prospects. Second mistake is using the wrong success metric; think about immediate orders, lagged orders, and so on. Make sure to do your keyword research, go deep. Make sure to fine tune your creative, do it constantly. Do not send ALL your traffic to your homepage. Then make sure to test your landing pages. There is a major issue with setting daily budget caps, in that it randomly picks keywords not to show up, but in reality you want your best keywords to come up first. You must measure and manage granularly. Do not simply measure on average, break it out and look at specifics to improve your overall average. Do not neglect localized opportunities. Do not only use broad match in Google, be specific. Bidding emotionally is a bad idea, do not outbid out of spite. By avoiding those mistakes, you will realize great success.

New game: Comparing Google to myriad companies

It seems to be sport these days to compare Google with some other successful company. Here are a few examples:

• Google next Microsoft (instructive to see parallels between these two companies)
• Why Google is Wal-mart
• Google as Starbucks/ McDonalds
• Google as AOL
  

Is Microsoft Charles Barkley?

In sports there have been countless athletes that have used tactics to get under their competitors skin whether through cheap shots a referee can't see or trash talk. Charles Barkely, Bill Laimbeer and others did this in basketball to draw fouls and get their opponent out of their rhythm and to do stupid things. This analogy came to mind when reading an article by Joel Spolsky on microeconomics that I posted about earlier about the hardware/software industry and how some companies have ignored economics in their decisions as they were blinded by their dislike towards Microsoft. Sun is a recent example but other examples include Novell, Oracle, Borland and Netscape. Unlike companies such as Intuit, Google and Yahoo who stayed true to their focus on their customer while competing against Microsoft, those companies and particularly their CEOs became obsessed with Microsoft/Bill Gates to their own downfall.

Ballmer finally gets that it helps to speak customers' language

Twelve years ago, I co-started vertical marketing at Microsoft when Microsoft was a recent entrant in the enterprise computing space with Windows NT and BackOffice. I started the Healthcare industry marketing effort which is now approaching the half billion dollar mark in revenue. Despite the revenue growth and 12 years passing, it's only now that Microsoft is making a major commitment to communicating with customers in a language they understand -- their industry's language.

When was I was in the healthcare marketing role, much of my time was spent translating the product group gobbleygook that was classic "speeds & feeds" sort of marketing talking about product features rather than benefits or proof of why your product matters. For example, healthcare has been through a shift to pushing care out of the hospital into outpatient clinics distributed throughout a community. The shift from "host" to "distributed" care has had dramatic implications for how healthcare gets delivered. Talking in these terms is much more meaningful to a healthcare CEO/CFO/CIO than the latest TPC benchmark. Speaking the customer's language was one of the reasons why we were able to drive growth in the healthcare market while having much less success in other industries where that didn't happen. Once Ballmer "gets it", watch out. It may take him awhile but he'll come on with a vengeance. IBM has a lead with their industry marketing efforts that will take quite awhile to close.

Update: Computer Reseller News gives additional information on the organization.

Odds against Rich Barton's (Expedia founder) Zillow

I have a hard time saying that the odds are against something that I don't know anything about beyond sketchy details I've read in the Seattle P-I and a real estate trade publication and more importantly when it involves someone the caliber of Rich Barton (founder and ex-CEO of Expedia). That said, I do know a thing or two about the consumer real estate business (I worked on HomeAdvisor and have been an active real estate investor) that leads me to believe the odds are against the strong group that Rich has assembled.

I knew Rich when we worked on sister sites when Expedia was still a part of Microsoft. We both worked for John Neilson -- one of the strongest senior execs at MSFT who unfortunately fell victim to lymphoma which claimed his life (As a side note, I'm convinced MSN would have been a success much earlier had John been around). Rich was a classic Microsoftie from that era -- super smart, driven but also had an entrepreneurial vision. I'm a big believer in betting on people and it's hard to bet against Rich.

The main reason I believe Zillow has a tough road ahead is that real estate is one of the more irrational industries from the standpoint of a tech entrepreneur. Real estate is more like the Healthcare industry than the travel industry or other industries Rich's team has worked on. In my career, I've worked in several industries (telecommunications, financial services, healthcare, entertainment, real estate, etc.). Without a doubt, the toughest nuts to crack were real estate and healthcare. They both share a common attribute of dealing with high dollar and high emotion purchases. Unlike other consumer businesses (travel, financial services, movie rentals, etc.), they aren't commodity products and it's easy for a consumer to become "irrational" from a pure economics perspective (e.g., how much would you spend on your child to keep them alive regardless of your financial situation). While industry fragmentation can sometimes be can an advantage for a startup, it can also bring significant go-to-market challenges. This is the case for real estate.

The other obstacle for Zillow is a lack of understanding of the nuances of the Real Estate industry -- it's not apparent any of his team has real estate experience. As I've stated in a previous post that discussed changes impacting the ad industry, not "getting it" can often be an advantage for a startup when attacking a new market. However, I don't think that advantage will play out based on what I've observed. In both healthcare and real estate, I've seen many "interlopers" come and go. They look at those industries and see massive dollars being spent and huge inefficiencies and see a colossal opportunity. The few that have had success blend a deep understanding of the industry with new way of looking at the market combined with innovative offerings.

If you look beneath the surface of some of those companies, you'll see they employ strategies espoused in James Surowiecki's book. A great example is a company run by my friend Ian Morris -- the CEO of HouseValues. There's much more than meets the eye that drives their success -- out of respect to HouseValues, I'll let you figure out the connections from what you can read about Surowiecki's book and in HouseValue's S-1. When Ian and some of the current HouseValues management team left MSFT a few years back, I can remember Microsofties and other tech entrepreneurs pooh-poohing HouseValues because they didn't understand the dynamics of real estate agents and consumers in the way HouseValues did. As their highly successful IPO has proven, taking an unconventional route is the path that has worked for them.

technorati tags: zillow, housevalues, realestate

What's Cellulose Ethanol & why should I care?

Given the rising demand curves for energy not to mention climate change issues, it's interesting to see startup activity addressing these issues. One of the efforts I'm excited about is Climate Solutions "Harvesting Clean Energy" program and related progress from companies they are helping to catalyze. Cellulose Ethanol is made from agriculture waste. While bio-fuels have been around for awhile, they are using the food product rather than the waste from farming. Iogen is on the cusp of building the first commercial scale production facility in Southern Idaho. Regardless of whether you are a "red" or a "blue", this is exciting to see. Check out articles related to this development.

North of Idaho, there are rumblings of Montana becoming the 3rd state (after Minnesota and Hawaii) to have a 10% ethanol requirement. One of the nice sidenotes is that it's a Republican-sponsored set of competing bills that have been catalyzed by a governor who is a Democrat.

Get your Jaffe Juice

My friend Joseph Jaffe recently took off the covers on his blog. He's always full of insights on the advertising world and particularly how the interactive advertising/marketing world is reshaping how marketers, agencies and media properties do their work. Add his blog to your RSS reader -- you won't regret it. I'm looking forward to his book, as well.

Time as a commodity

"The chief goal of life has become saving time."

-Michael Tchong , Lead Consumer Analyst, Iconoculture Inc.

I like this quote as it applies whether you are talking about consumers or business decision makers, building products or ad campaigns that will drive the response you want.

Shopping for Venture Money

Martin Tobias of Ignition Partners and founder of Loudeye has a nice piece on NW Venture Voice about how to go about raising venture money. There are also some good thoughts on how to make money decisions in general during the early stages of a venture.

Allen Morgan at Mayfield has a nice series up on his blog entitled the Ten Commandments for Entrepreneurs -- his ideas of the 10 most important "procedural" things to keep in mind when you approach a VC. Some of these are pretty obvious but good reminders nonetheless. He startsby making the point that you absolutely do make sure you obey the three “Uber Commandments” (see post on Commandment #1) and tell why: (1) you have a great technology idea, (2) being implemented by a great team, and (3) attacking a huge market in the midst of a transition.

His first point is whenever you're approaching a VC firm for funding, it's always optimal (surprise!) to connect with the partner in the firm who has the closest investment interest to the space your startup is going after. Commandment #2 is Be on Time. Commandment #3 is Tease, Don't Overwhelm -- the key is to pique interest in order to get meeting #2. Commandment #4 is to Know Your Audience. There are some useful comments from the entrepreneur's perspective on Commandment #4 -- things to be careful of and some suggested commandments for VCs. Commandment #5 is Create the "Aha" Early -- i.e., get to the point quickly and you are more likely to have a rich conversation with the VCs that engages them much more than droning through PowerPoint slides. Commandment #6 is Explain Your New Idea by Analogy To, or Contrast with, Old Ideas. I'll confess, I'm an "analogy man" as I believe it's the best way to simplify what may be a complex business to explain. It gives the audience a frame in which digest the rest of what they'll hear.