March 2008

jessica-livingston

28 Mar 2008

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Founderitis: Black Hats versus White Hats

Founders at WorkHBR: The Founder’s DilemmaToday, I will expand on an offhand comment I made last week about founderitis being one of the biggest barriers to engagement with the Grover Playbook and, incidentally, probably the number one showstopper for investment we encounter at Verdexus.

As a serial entrepreneur, investor and (ex-)founder in technology startups, I have seen more than my share of experiences showing how fraught founder interactions can be. My friend J Paul Haynes, who is a serial executive (and founder), showed me an interesting article from the February 2008 issue of Harvard Business Review on this topic entitled “The Founder’s Dilemma”. In this article, Noam Wasserman analyzed 212 startups and observed some intriguing patterns. What is great about this article is that it provides a cold, analytic economic framework to assess the “founder’s dilemma” which is the “… choice between making money and controlling the business.” The Faustian bargain to give up equity and control in order to attract institutional (venture) capital that will grow the business faster is a hard one for many founders to accept. And yet, the leverage of external capital and talent typically goes hand in hand with technology startups.

Wasserman goes on to show that founders, who want to retain control, often choose (or are forced to accept) slower growth and less chance of making money in a “home run” exit. Conversely, the study almost paints a picture of the inevitability of founders being pushed out by investors. For most founders, it makes grim reading, while most VCs would simply nod knowingly at the picture of founder limitations. After all, many of those terms in the much vaunted VC term sheets (now often term books!) evolved precisely as defensive artillery trained on errant founders. The article’s implication that the half life of the CEO tenure founders is short, will make difficult reading for most founders.

Perhaps it is difficult for founders to excel at both and so they “… end up being neither rich nor king”, but I would hope to see less of a zero sum game and more scope for personal growth. Personally, I find most founders I encounter to be smart and compelling individuals. Of course, I’ve also seen many of the counterproductive traits and habits that the VCs pejoratively label “founderitis”. On balance, I’m mostly on the side of founders in this classic standoff between the “black hats” (VCs) and “white hats” (founders). Having said that, I’ve also founders pull some appalling stupid and counterproductive moves in my time.

Since most founders are super smart and highly motivated individuals, with better mentoring, role models and better expectation setting by all parties, I would like to believe that more founders could better integrate the “rich” and “king” parts. In other words, I would hope to see more founders figure out how to increase their management and team playing skills, while also building value in their businesses.

As I mentioned, I think founders are, as a whole, a creative, exciting and group worth celebrating. Therefore, to balance Wasserman’s HBR research, I’d encourage everyone to read the remarkable 2007 book Founders at Work by Jessica Livingston. In it, she endeavoured to analyze founders by interviewing 32 founders from the 1980’s and onward, from hardware, to software, to Web 2.0 she has deduced some interesting patterns of founders:

  • Tenacity: many technical founders had a burning passion that defied logic or “expert” advice until, of course, the idea caught on big time.
  • Listening to the market: PayPal told their early eBay customers to “go away” so they could focus on mobile payments, before they realized that their real business was serving those annoying PayPal transactions.
  • Distrust: a single event, early in the history of Apple, poisoned relations between Steve Wozniak and Steve Jobs and was perhaps never recoverable.
  • VC Ego: Hotmail founder Sabeer Bhatia recounts how Tim Draper tried to claim to have invented Bhatia’s innovative viral marketing links embedded in every Hotmail message.

While it is easy to imagine the “blindspots” and self promotion inherent in interviews with founders, the sheer number of founders that Ms. Livingston interviewed helps to mitigate this concern over a wide range of time and types of technology businesses. And, for those who think the MBAs and marketers rule the world, it is refreshing to see the Silicon Valley model of very strong technical founders celebrated.

So, here’s to those remarkable individuals, the entrepreneurs founders who have the courage and tenacity to start business. For all their shortcomings and big egos, we do need to celebrate their important role in venture creation.

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RunTheDream-Autism

22 Mar 2008

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RUN THE DREAM: Social Entrepreneurism Par Excellence

Jonathan HowardOn Thursday, I attended the pre-launch party for what is an exciting new social enterprise. The guest of honour, Jonathan Howard, a 24 year old (and, I am proud to say, my nephew), is embarking on an extraordinary quest. On Tuesday, 25 March he will, in his RunTheDream charity fundraiser, do what most of us wouldn’t ever even consider attempting – to run across Canada, a distance of over 9 000 km from St. John’s to Victoria.

Why has Jonathan undertaken this amazing, and many of us would say impossible, run? Well, besides proving to himself that he can, Jonathan who is already an accomplished athlete and marathon runner, has had this personal goal since his university days. And, even more importantly, he hopes to raise significant funds for Autism Society of Canada, a rapidly emerging cause, yet one that still lags some of the bigger charities in its awareness and fundraising. In addition to a significant fundraising objective, a CSF for Jonathan’s will be to significantly increase awareness of the Autism Spectrum Disorders across Canada.

How can you help Jonathan raise his (minimum) goal of $2.5 million? The website at http://www.runthedream.ca will be launched on Tuesday March 25th, and in addition to regularly updated progress reports, online donations can be made on this site, or printable forms for mailing purposes are also provided. Alternatively, any Canadians can email from their online banking portal to “mydonation@runthedream.ca”. Please give generously, however you choose to donate.

One of my personal favourite quotes to characterize the exceptional nature of entrepreneurism is:

“Entrepreneurism – making the impossible merely difficult”

This surely applies to Jonathan’s demonstrated passion to embark on a task that 99.999% of us would view as impossible. And, part of achieving the impossible is the creation of a great “social enterprise” in RunTheDream, having startup metrics like:

  • Year one revenue (contributions) target of $2.5 million (which very few technology startups aspire to, let alone achieve
  • 8 month run timeline, but probably almost two years of activities planned from conception to completion
  • corporate partners, like Telus, MuchMusic, Gatorade, Landmark Sport Group & Spa Sensations
  • a “board” & management group of about 15 core individuals doing everything from public relations, event planning, logistics, business development and partnering, etc.
  • and, like most technology startups, Jonathan and the team have developed this using years and months of passionately dedicated “sweat equity”

So, by these measures, this a not “your father’s” approach to charity or nonprofit and, I remain excited how the passionate entrepreneurism of remarkable individuals like Jonathan Howard, continue to transform our society in very positive ways. We all wish Jonathan good luck in embarking on his trans-Canada odyssey.

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Grover-Righter-MaRS-ExpertFile-e1629496871512

19 Mar 2008

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The “New Playbook for Venture 2.0: How to get from $0 to exit with less capital”

Grover Righter
Yesterday, long time friend and business colleague Grover P. Righter who is General Manager Americas for Silicon Valley-based iMobileInternet, was the Keynote speaker at the Mars Experience Tech 2008 Conference. That conference was clearly a highlight of the year and was brilliantly executed by MaRS guru Peter Evans.

And, Grover’s keynote address, entitled “New Playbook for Venture 2.0: How to get from $0 to exit with less capital” easily stole the show. I’m keenly encouraging wider understanding of this topic, as it is central to our core “hands on” investment strategy at Verdexus. In a very detailed methodology, that I’ll dub the Grover Playbook, Grover Righter clearly has best captured the essence of the new world of building more capital efficient knowledge-based businesses.

I’m hoping Grover will provide a more detailed briefing on this methodology in a future instalment, meanwhile I’ll highlight a few key points:

  • with the advent of open source, virtualization, outsourcing, social networks and new web/mobile models into the enterprise, building a web or wireless business from scratch to exit (“new home”) for about $2 million (rather than the more traditional $20 to $50 million for an enterprise software company), translates into 10 times improvement in capital requirements and efficiency.
  • while undoubtedly attractive, this world isn’t easy to navigate. Requiring an incredibly detailed and disciplined approach, I would suggest this Playbook might demand 10 times the strategic and executional skills from the (extended) management team compared to the more traditional technology company build-out.
  • perhaps the great unspoken implication of Grover’s talk was what it means to typical venture investors who have primarily focused on the provision of capital versus the operational and executional aspects.
  • in fact, Grover’s model is really a way to optimize that notorious gap from Angel/Friends and Family to Series “A” by leveraging advisors and capital in creative ways,
  • a truly synthesized approach, aimed primarily at the CEO (and senior management team), Grover’s Playbook covers all aspects of the business, including composite business models (“Revenue 2.0”) , overall financial models (the “Well Formed Company”), new cash model (the “CEO’s Mistress”), virtualizing nearly everything (including management), the limitations of traditional market research, decoding value (users vs. who pays the bills), go Beta early, etc.
  • From the Q&A and later discussions, it was clear to me that the serial entrepreneurs and experienced executives in the audience immediately “got it”, but
  • my suspicion is, the prominence of a very activist virtual management (advisors and mentors who are exhorted to be a constant thorn in the side of management), may challenge the natural tendencies of many founders (did I say “founderitis”?)

All the above was provided backed up by a financial model, that needs to be customized by each CEO.

Stay tuned to hear more about the Grover Playbook for Venture 2.x.

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logofon1

15 Mar 2008

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The World is My Oyster – State of Connectivity in Europe

WiFI BusOyster Card
And, don’t worry, with modern hand luggage restrictions, I didn’t have my sword to open the oyster to extract a pearl! In fact, Oyster is a Transport For London brand for their payment system. Many here in North America feel we are at the epicentre of the technology universe and have a monopoly on great technologies empowering the connectivity behind our increasinly always on lifestyle. With a different work-life cultural balance, Europe has much to teach us about deploying state of the art technologies, especially those we might encounter in daily life. But, too, not all are absolutely without flaws. I will share a few experiences from a recent pan-European sojourn.

OYSTER CARD:

Although deployed for a few years, this convenient contact-less payment card, containing an RFID chip, has in the last year or so taken off to the point that it is now used by around 90% of all trips on London Underground, buses and even some National Rail services. While, in North America, we think of RFID’s use in logistics and as a more active version of all those UPC barcodes, these embedded applications may be the more fundamental ones.
How does it work? You simply pay £3 for the card, which is yours for life, and you then top it up as a pre-paid card. Oyster users pay less per trip, and, by monitoring your usage and appropriately capping charging, it also replaces a single day travelcard. Further, Oyster can also be used as a multi-day pass. You can register online so you can keep your money should your card be lost or stolen. In use, it is important to swipe both in AND out at the turnstiles, like in the photo above.

Compared with:

  • Toronto Transit Commission, which replaced its 50 year old tokens, with ones that are harder to counterfeit, or with
  • San Francisco’s BART, which uses 1980’s technology magstripe cards,

Transport For London (TFL) has taken a much bolder step in payments with their Oyster Card. It was convenient, fast, well documented, but …

What’s the Catch? Several times, I found that I got the message “See Supervisor” and would have to swipe again to make it exit. And, remember, that unless you swipe both in and out from your journey, you may find a £4 charge for a short trip, instead of the correct charge of £1.50. How this happened to me was that I swiped on exit, got the “Supervisor” message, and swiped again. The gates opened, but I found it had ended my first trip then begun a second trip, which it viewed as uncompleted, hence the £4 charge!

Like most great technologies, it comes down to intelligent software design and execution. Clearly smarter pattern recognition in the software could have removed this artefact either because of the short time between trip end and trip start or because this was an outbound turnstile, from which trips should end not commence.

WiFi ON BUSES:

Normally, I don’t travel on buses. Here in Canada, they are typically unpleasant, crowded and I’m old enough to remember when they were smoky as well. Because of a missed flight by my partner, I made one unscheduled 1 hour inter-city connection on a bus. Imagine my surprise when the price was great, there was free coffee served by a human, TVs with headphones and comfortable seats. But, most surprising of all, and I haven’t seen this anywhere else, was FREE WiFi connectivity on the buses. I was actually able to crack open my notebook and connect to the web and synchronize my email. While it did fade in and out a few times, I was totally amazed that this would even work at all. I’m still trying to figure out what technology connected the bus to the rest of the world (is it 3G wireless?), but clearly this was impressive. So, a combination of great technology, great service and comfortable buses was instructive in creating a “business class” experience in a European inter-city bus.

FON WiFI HOTSPOTS:

I was excited a few years about when FON was launched to make an open, universal WiFi Cloud. Part of the idea was for each person to “open up” their home or business routers, but in a secure way, to create a cloud in an almost open source way. And, because part of the founding energy for Spanish company FON, came from the Skype principals, it looked very promising indeed. So, I signed up in 2005 and then nothing happened.

Imagine my pleasant surprise to be in a cafe in Munich, called News Bar, and to see the familiar FON logo. Furthermore, after having paid €3 per hour at a previous cafe hotspot (not to mention £4 per hour in London!), it was great that this cost only €3 per day. What is more, I logged in at 2 other cafes that day, all using FON and all for that same €3 charge in the first hotspot. Although the FON business model includes a revenue share with the hotspot owners, they will not get rich from the proceeds. It was great to see the high level of FON penetration in Munich, and London appears to be following along. I can only hope that Waterloo and Toronto will wake up to this movement to create an open source cloud, as well.

3G:

Perhaps WiFi will become less important as 3G technology, in particular HSDPA with around 3.6 Mbps download speeds, becomes pervasive. Having started rollouts in 2003 in UK and Italy, Europe has about a 5 year head start on North America. Few will realize that Rogers has been staging a rollout of HSDPA into major Canadian cities over the last year and, similarly for AT&T across the US.

Enroute back to Toronto, I was in the Air Canada Maple Leaf lounge, struggling, like everyone else, to connect to their WiFi network, when I noticed one Swedish laptop user was productively downloading, surfing and emailing. His secret? His 3G PC card. Now, of course Europe insn’t a total 3G data utopia. I suspect it will be a year or more before international roaming in 3G data becomes more reasonably priced (read not extortionate) and, for those of use who aren’t residents and rely on prepaid cards, unlimited prepaid data tariffs become available. However, hope is on the horizon – my colleague, Alec Saunders, at World Mobile Congress in Barcelona, used Yoigo for an amazing €1.50 per day, on a prepaid basis. How long can it be that such a great concept will propagate from Spain to the rest of Europe, and perhaps the rest of the world?

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iotumfreeconference1

15 Mar 2008

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Iotum – Rocketing Through 200 000 Users

Free Conference Calls for Facebook, by iotumToday, I am excitedly watching Ottawa-based iotum‘s Free Conference Calls application on Facebook rocket through the 200 000 net installed user mark. As many of you know, iotum is a Verdexus portfolio investment of late last year when I also engaged with the company as Chairman. Note that I plan to discuss the investment cycle for global and Canadian startups in later blogs. Meanwhile, for those of you near Toronto, on Wednesday March 19th, my colleague Grover Righter of iMobileInternet will present a great keynote on the topic “The New Playbook for Venture 2.0: how to get from $0 to exit with less capital” at the Mars ExperienceTech 2008 conference.

Having invested in the company because of a great team and a deep intellectual property portfolio driving an application aimed at the emerging market for business-oriented applications on Facebook, it is indeed gratifying to witness this robust level of end user adoption. Not just a typical “light-weight” Facebook application, iotum‘s Free Conference Calls is a professional grade, full featured new take on the conference call. It fuses iotum‘s expertise in presence with social networks to create a new level of user experience, and mashes up many non-voice features like a live wall, full SMS/mobile enabled invitation system, recordings to allow instant podcast creation, and much more.

How good is this? Well, for the all important race to a million for Web 2.0 type of businesses, iotum is definitely a top performer. On February 27th having previously focused on the North American market with US dial-in numbers, iotum released global call-in features, like flash-based dial from computers, callback and their first European dial-in numbers (in France). This was done in partnership with some key international players like Truphone, Abbeynet and Moi Telecom. The response? In a mere two weeks, with huge interest in the media and blogosphere, the installed base of users more than doubled to 200 000 users as of today. That level of user endorsement is a direct response to the iotum team managing to deliver and refine an application that resonates with a rich user experience and which is in fact very useful. Essentially a new form of media experience, already it is being used for teleseminars, political campaigns, talk radio, podcasts, nonprofits, business meetings, and much more. In typical Web 2.0 fashion, the user community is seizing this application, and not only building content (conferences), but shaping it in ways that were not perhaps anticipated initially at the time of launch.

I’d encourage everyone to give it a try using this link: Free Conference Calls

The screen shot at the top of this blog shows one recent conference call, an installment of the daily Squawk Box conference and podcast. But, to be truly appreciated, this needs to be experienced personally. Stay tuned for more developments from this exciting company.

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CeBIT

6 Mar 2008

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CeBIT 2008 – World’s Largest ICT Show Still Strong in the Age of the Web!

CeBIT 2008 - Just One Building of 30 from the EntranceAs part of a European trip through Vienna, Munich, London and Berlin to meet with some tech startups and key tech investors, yesterday I stopped in at CeBIT in Hannover Germany.

For those who don’t know CeBIT, this massive Information & Communications Technologies (ICT) show remains the largest computer show in the world. I’ve attended CeBIT off and on over the last 25 years, with my first one being in 1984 to launch Coherent on a prototype Commodore C900 machine. At that time, CeBIT was a “show within a show” of about 5 buildings in the 25 buildings that comprised Hanover Fair (HannoverMesse, in German). The rest of the show was chock full of large industrial equipment, construction technology, mining equipment and the like, so incredibly diverse. Today, CeBIT consumes 27 buildings (plus a number of smaller pavilions), each building the size of a large convention centre/trade show facility in itself.

Today, before heading out to Berlin, I wanted to share a few impressions:

  • The show is still going strong – while the web is disintermediating large US shows and even reduced to 6 days, down from 8, the halls of CeBIT were packed.
  • In all the chaos, there is still some room for focus. e.g. I estimate that last month’s World Mobile Congress in Barcelona to be about 5% the size of CeBIT, and CeBIT’s 5+ buildings of mobile and wireless are likely double WMC’s exhibitor footprint.
  • Other key focuses are security (whose hall was mobbed yesterday), navigation and tracking, big server and other hardware, and of course the many smaller companies from around the world.
  • Notwithstanding the amount of German signage, the show continues to be quite international. Although US presence may have dropped a bit, the Asian presence continues to grow dramatically, and those companies are moving up the food chain – not just contract manufacturers, but producers of innovative products and technologies.
  • Top people were there – CEOs, senior executives and the like – clearly, it’s an environment where global tech business gets done, alliances are built, etc.
  • I can’t remember when I’ve seen so much big iron – servers, telephony switches, etc. While Verdexus doesn’t invest in this area, it was interesting to see the trends here nonetheless – companies like Thomson with their media strategies are notable in this regard.

Out of this plethora of technology riches, here are just a few themes that I’d comment on:

MOBILE:
Given that Symbian (Nokia, Sony Ericsson) has a installed base over 10 times the size of RIM’s Blackberry, I was really surprised to see that Vodafone’s entire enterprise and data-driven applications displays were pretty well 100% Blackberry-oriented. While someone in Waterloo wouldn’t be surprised at this, for Europe this was surprising in a region where Blackberry sitings (except among Americans and Canadians) are still relatively rare. And, as a corollary for obvious reasons, there really weren’t a lot of Apple iPhones around.
SECURITY
A whole new generation of security players, relative to Symantec and Macafee, are rapidly gaining market momentum. Companies like Kaspersky Labs, AVG, GData, Trend Micro, etc. now have a huge footprint. There’s lots of talk of IPO activity in this sector (which will certainly be a welcome change), and it’s interesting that the new security business model is less to build the all-singing, all dancing suite (a la Symantec), but to stick more closely to a pure play strategy. These trends should be of strong interest to all those building startups in the security space – new partnering and liquidity strategies may be needed.

And, with my interest in new startups and the business models they enable, I’ll mention one university spin-out from Regensburg called Psylock Years of research seem to have finally provided a commercial grade, hardware-free authentication, accurately identifying people based on their typing behaviour. I’m convinced that Psylock will enable some very interesting new applications.

RFID
Another promising technology, coming from some brilliant minds in Zagreb, was an OEM RFID implementation sized at 50% of existing products and consuming much less power. This, when combined into barcode scanners or other technologies, will help RFID move into entirely new applications. This is another technology to watch.

OFFSHORING
The days of cheap offshoring (nearshoring) for European companies in countries like Czech Republic, Hungary and Poland are probably over. The very talented companies in this area are now focused on quality and human capital and no longer on price. You have to look further east to Ukraine or Russia or Asia to lower software development costs.

So, there you have it – CeBIT, there’s nothing else quite like it, and amazingly strong after all these years …

CeBIT 2008 Map of Messegelande in Hannover, GermanyCeBIT 2008 Logo and Dates

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laudamotion18

4 Mar 2008

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Free Love and the Mini

 

For those from the 1960’s such a pairing might trigger nostalgia. But in the new millennium, what does this mean? Believe it or not, the former is hot, emerging branding strategy for a media-saturated populace.

This week, en route from Vienna, via Munich to CeBIT and on to Berlin, my European Verdexus partner Suresh Patel, and I had an opportunity to see the mantra of “free love” marketing techniques playing out on the strassen and autobahnen of Austria and Germany.

Niki Lauda‘s eponymous and innovative car rental cum advertising company LaudaMotion in Vienna, rents a brand new BMW Mini car for an amazing €20. And, given Suresh’s obsession with carbon neutrality, a Mini is definitely planet friendly. Our Mini came painted out in the badge of the same Niki Lauda’s FlyNiki.com, which includes flights between London and Vienna for as low as £1. The business model of such low cost airlines is probably a topic for another day. As well, today we saw Smart Cars and Minis advertising SkyEurope, Allianz, etc.

Clearly this business, of transforming rental customers like us into moving billboards, is predicated on us driving around a whole lot and in areas with good “viewer” demographics. The pricing model, which among other things, encourages in-city travel, by including only 100 km/day, attempts to optimize eyeballs, and the right ones at that. Unfortunately for LaudaMotion, our circle trip around Germany significantly strays from their demographic sweet spot.

Anyway, this type of free (or almost free) stuff combined with product placement is well described in this month’s (March 2008) TrendSpotting briefing.
Enjoy! As much as we love Hertz (or Sixt), we certainly enjoyed a unique car rental experience.

Isn’t this post Web 1.0, mobile enabled world, way more interesting than the 1950’s Procter and Gamble, soap-opera style of advertising?

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