At Berkeley, judging at panel for Berkeley’s Mobile Startup Challenge

Fun stuff!

3.5 screens & loving it

Lenovo T410 / Windows 7, across 3 monitors, plus an Ipad

Got my #geek on

awesome game, great win

Let’s go Steelers!!!

took boys shopping today. very pleased that they seemed to enjoy REI as much as gamestop.

Thru the looking glass: Fund-Raising Lessons

Handling QA in investor pitches

Udemy’s Gagan Biyani wrote a super useful, practical guide on fund-raising lessons learned.  Gagan is a great Silicon Valley startup CEO: he’s tireless, he’s persistent, he’s nice, and he’s adaptive.  All that comes through in his post.  Give it a read here. 

He set an example that I wanted to follow on slightly with some of my own lessons learned and lessons borrowed.  I’ve gained the opportunity to participate in the fund-raising process from a few angles. As an entrepreneur, I’ve raised money for my own company, Moonshoot.   I’m also at times a venture capitalist/investor at BlueRun Ventures, so I see things from the other side of the table too.  

I’m putting together a series of posts, which aim to share these learnings.  I’m going to start this series with one of the most important –and under-discussed – elements of the fund-raising process: answering questions.  

“Say it once.  Say it well.  Don’t say it again.”

I attribute this quote to one of my best friends, Nils Gilman.  An intellectual historian, published author, and polymath, Nils is a fountain of knowledge, thinking and ideas.  He can also flat out turn out well-written text at a factory pace—it’s crazy.  He uses the above adage, in coaching me on writing.  I apply it to what we say, specifically when answering questions in a pitch. 

Why questions matter

Most fund-raising posts will focus on pitch decks, meeting etiquette, etc.  All that stuff is useful.  In my experience though, a key skill for any founding team is how to answer questions.  Investors want to ask questions to probe more deeply and to see how you respond.   In addition to getting us information we want, asking questions provides a different lens into the thinking and quality of the founding team.  How you answer questions conveys a great deal about you, your team,  your credibility, your command of data, etc.   You may not win by answering questions well; you risk a lot by answering poorly.

Where to Start

As answering question is more improvisational, it tends to get less attention than preparing a pitch, getting the deck in shape, etc..  Don’t ignore questions though—spend time thinking about how you want to answer questions.  Nothing is more painful than presenting a great pitch, only to feel as though you gooned a few key questions and lost your credibility in front of a potential investor. 

I recommend Jerry Weissman’s book, In the Line of Fire: How to Handle Tough Questions.  Jerry is a friend, mentor and teacher.  He’s one of the very best in presentation training and skills.  His thinking and exercises on Q&A (and among presentation planning) are among the best.  Get his book here.

I also recommend writing down the top 10 questions you expect.  Figure out how you want to answer them, and answer them that way.  As you go through pitching, write down the questions you’re getting, along with the answers you provide at the time.  Assess whether there are better answers you could have provided, and add that to your repertoire.  Evolve this so that as you do this more, you’re ready.    

My Observations

Few founding teams handle questions extremely well.  Many struggle with basics—hearing the question asked and answering.  For example, if an investor asks you if you’ve raised previous money, a simple “yes, we’ve raised $80K in friends and family” is a fine answer.  Instead, often there’s some whole discussion of who gave you money, when all it came in, why you took it, etc.   TMI.  Understand the question being asked, and answer it.  Remember the adage:

Say it once.  Say it well.  Don’t say it again.

Focus on this, and you’ll be in good shape. 

As you are focusing on this, I’ll add the two most common breakdowns I see in founders answering questions during a pitch.  Though different, they’re related.  Here are the two most common problems I see in answering questions in a pitch:

Answering about the unknowns. 

Founders are dealing with big unknowns.  Known unknowns and unknown unknowns.  As someone assessing whether I’d invest, I know you’re dealing with unknowns.  Its generally fine to say, “I don’t know, and here’s my plan to learn/figure out.”  So long as this is credible, that’s fine. 

There are two cases where that does not work.  First, you say you don’t know, when I think you reasonably should.  For example, this summer I spoke to a mobile location-based platform company seeking investment.  The exec with whom I spoke hadn’t heard of FourSquare.  This was unacceptable, as this person should have known of them—something he should have been able to figure out. 

The second is where you dress up the “I don’t know,” in a bunch of bullshit.  I have sympathy for this mistake.  As a founder, we want to know everything on the business.  We don’t want to feel like we don’t know an answer to a question.  We may even have some decent hypotheses.  But if you don’t know, you don’t know.  Just say, “I don’t know yet.  I plan to figure that out this way.”  BS is pretty easy to identify and its hard to watch.  I understand the temptation, but avoid. 

Answering about the knowns. 

If founders talk too much about what they don’t know, they are also prone to talking to much in answering questions on details that they do know.  The problem here is lack of empathy.  Investors are flying at a different altitude than the founder.  Founders have everything invested in a company, and are very close to the businness.  Investors are much more removed—trying to assess in a brief conversation the viability of potentially investing  money in a venture.  An investor is flashing through in his/her mind whether the market, the team, and product could be a fit.  This mismatch leads to times where an investor can feel a pitching founder is just off on a tangent and “in the weeds” to a degree that they won’t be able to manage or lead a company.   

Sometimes an investor really is interested in getting down into the weeds, but that’s pretty rare.  As a founder, you should know whether the investor is asking for that detail—if yes, then go into weeds.  If not, hold back. 

I posit that when most potential investors ask a question, they want to see whether a founder can understand it quickly and credibly clarify the essence of what I’m asking.  Sounds easy; hard to do.  Most of us are so close to our specific worldview that its difficult to context switch and communicate at a more bubbled up level. 

For example, I spoke by phone with the CEO of an outstanding company this summer.  Very clearly, they’d built a better mousetrap.  The issue was, no question I asked, regardless of how basic, had less than an 8 minute answer.  This did damage.  I literally got spooked because the executive’s answers were too disjointed and long.

As I reflect on this, it could well be that these symptoms are related.  As founders, we want to hide the stuff we don’t know and expand the stuff we do.  The result is unsurprising.  For stuff we don’t know, we retreat and hem and haw and deflect.  For the stuff we do, we want to expound and show you in 10 different ways why we know this particular thing.  The problem is, both are exactly the wrong approach.  Which leads me back to the mantra I’m repeating…

Say it once.  Say it well.  Don’t say it again.

In conclusion, I’m kicking off my series on pitching observations with a (hopefully) useful primer on answering questions.  Think about this.  Write down key questions you expect and prepare answers.  Track the questions you get asked and how you answered them.  Be mindful of whether you’re more effective saying “I don’t know, but…” or answering what you do know. 

And good luck.  Happy hunting. 

Pitch Advice from Jerry Bruckheimer

2010 has been a busy year for me.  We launched Moonshoot in Japan, and that’s going well.  I’ve done a few talks at the Founders Institute, some friends of mine and I built Smackdaddy for the IPhone, and I’ve begun helping out part-time at BlueRun Ventures.  All in all, a busy 3 quarters so far, which has led to a dearth of blogging.

To re-enter the blogosphere, I’m planning on spending several posts sharing learning I’ve had in the fund-raising process–both as an entrepreneur (by day) and as a vc (by night).   This first one is a story I’ve told analogue about 5 times in the past 2 weeks, so I figured I should probably post it to the blog and share it potentially more broadly.  It has to do with a key reality in pitches or startups that you need to think about when you are getting started or pitching.  Namely, is the business one that’s going to emotionally draw someone in?

My inspiration for this emotional connection is uber-producer Jerry Bruckheimer, whom Wikipedia credits with over 40 feature film productions.  His movies rock, I love them.  Years ago, I recall reading an interview of his, which I sadly can’t find, in which he was asked how he knew what was good or not good.  He graciously claimed that he had no idea what would catch on and be a hit and what wouldn’t.  What he did know, though was emotionally what connected with him–and he had some funny quote about how he felt a tingle in his chair when a movie really grabbed him.  This ‘a**-grab’ was the thing that told him whether the movie was good or not.  A totally emotional, non-scientific approach.

In the startup world, there is an element of this that’s important.  Sadly, this is sometimes overlooked.  VCs are looking for massive returns and low friction, etc.  Entrepreneurs are looking to make meaning or build something people want, etc., etc.  And while both of these points are useful to think about, at some point, you had better look at a business and be emotionally drawn to it.  At the end of the day, whether you are an investor of money (a VC) or an investor of time (a founder or employee), its important to contemplate whether you think the business has any emotional draw to you (or anyone else).

If you don’t feel the pull, that’s fine, the business may still be a monster, but I’d say stay away.  The work is too hard, the days too long, the competition too fierce for you to be ambivalent on the emotional draw of a business.

More often than I’d like to, I see businesses where teams have built a solution to a problem that does not grab me (or often, their founders) emotionally.  If you love your business, and I don’t, that’s fine–s*** happens, and that’s fine.  If you don’t love your business, trust that others will know.  In that scenario, why do that.  Let it go, don’t settle.  Find the business that gets your spine tingling and give your all to that.

Welcome back to blogging.

Can You Handle the Truth? Advice for Founders

Always tell the truth, its the easiest thing to remember. — Glengarry Glen Ross

I have started my second semester at the Founder Institute, Adeo Ressi‘s awesome incubator.  It has been a blast so far, in my view, a lot of really strong founders wiht great, viable business ideas. It has been a lot of fun to be involved, and it is as always humbling to have smart, passionate people asking for my input.

As it is still early in this group’s process, some of the ideas are a little earlier on, still in “ideation” (terrible word) mode.  This is of course a natural state of being in a startups life, that early stage when you’re still not even sure you’ve got a good idea.  Its an exhilirating time–you’ve not made any mistakes (yet) and the world seems ripe to take on your vision, while at the same time, you definitely have those soul-shaking moments of doubt as to whether you’ll ever be able to turn your idea into reality.

Int this stew, founders will come to me to ask my advice on their idea, and I’m happy to try to take the time to listen and provide a few minutes of helpful input.

A question I have had and answered for myself is how hard core or harsh to be on someone’s idea when it is still on the drawing board.  Although it certainly has its risks and drawbacks, I’ve decided that this is a time to be very blunt and hardcore.  The risk is that this approach dissuades someone or that it gives them an impression that I’m a jerk.   This is the last thing any founder wants to become–the startup world is too small afor people t get such an impression.

The counter argument is that by being hard core you toughen up a founder, you help him or her focus on the key challenges in their business, and  at an extreme, you convince the founder that the idea is not worth investing time and life in.  At the ideation phase, the costs of switching an idea are low.  I have become comfortable with this being on balance the preferred approach–the pain is worth the value.  I also try to remind the founder whenever I do this that my opinion is just one, and I’m certainly perfectly happy to have the founder prove me wrong and make a boatload of money doing just that.  In other words, its not personal, and I’m hopeful that it does help.

I have come to believe passionately that this is the only appropriate response for founders asking for advice.  My input is not costing anything, and if I’m off by a mile, there’s no reason that a founder should listen to me.  You asked and I answered.  No harm, no foul.  Totally makes sense, right?

Right.  As founders we should all be pushing each other in as hard core a way to make our businesses kick ass and take names.  Give the advice, hit hard.

Twitter’s Platform Mojo

Betaworks’ John Borthwick recently posted the informative Ongoing tracking of the real time web…  Combined with Fred Wilson’s AVC post Twitter v. the Twitter Ecosystem, these two posts illustrate and highlight important learnings for startups and entrepreneurs everywhere.  Those learnings are the subject of this post. 

The key points of this post are: (1) Twitter is indeed a platform; and (2) platforms’ own profitability are related not a little bit to the revenue driving capabilities of those partners that build on the platform.  Twitter has clearly enabled other applications to create and build innovative services, a la Tweetdeck, Seesmic, Bit.ly, etc.  These are great as they extend Twitter’s value even further.   Over time, we should expect that the traffic through the platform will dwarf the traffic of the application/web site called Twitter.  This is a useful illustration for web- internet-based entrepreneurs on the value of platform building in a business.  Here’s what I mean…

I give a talk called Revenue: Of Moats & Models in Silicon Valley.  The purpose of this talk is to help the very early stage startup—ideally the 1-2 founder team in the garage—frame quickly and easily how to think about revenue and building their business.  One of the things that I talk about a lot is thinking through how to build a fly-wheel in your business.  Some people call this a “platform play,” but I tend to prefer a more crisp illustration of a positive feedback loop.  The steps that I illustrate and walk through with founders is one that is simple and seems to resonate with most founders.  The steps are:

1. Create something users want.  (Smart, effective founders recognize this as the Paul Graham [YC] mantra.  It totally makes sense—this is step 1, without this you’ve got nothing.)
2. Build user base and share leadership.  (This is just about extending step 1 into momentum.)
3. Create a extension that attracts and enables a second stakeholder group.  E.g., application developers who want to access your users; teachers who want to access your students; advertisers who want to sell stuff, etc., etc.
4. Empower that second stakeholder group to reinforce and extend the value to the core users who you started with in step 1.

Wash, Rinse, Repeat. 

This is a very basic description of the positive feedback loop that the vast majority of massive tech companies have used to achieve their dominance—Microsoft, Google, Facebook, Apple Iphone, etc.   Sometimes tech folks will look all dreamy eyed and say the words “platform play,” and this is probably what they mean (or should be).  Specifically, the platform means that there is a second stakeholder group that is specifically betting on you to make money, gain share, whatever for themselves. 

In the talk I give, I suggest or recommend that the founding team spend an hour or two trying to think about building that precise feedback loop around their idea.  I contend that this can be a useful exercise, one more should do.

Part of the reason this exercise is so useful is now highlighted with the blog posts that I started this off with.   What Borthwick and Wilson are both highlighting is something that has been obvious to me for months: namely that the power of Twitter is as a Platform, not as an Application.  Others – bit.ly, tweetdeck, tweetfeed, etc. – are now investing their R&D budgets, engineering talent, marketing efforts towards extending brands that build on Twitter.  Twitter as the platform enables this, and Twitter gets some benefit by having these partners do this work.  This is all great, and it reinforces arguments I’ve made before on this blog about why skeptics focusing on Twitter traffic or retention, while important, is probably less important than the health of its ecosystem. 

The second thing that I’d illustrate on Twitter as a Platform is a point that’s common to most platforms but not well understood.  Namely, while platforms on their own can be massive from a revenue and profitability standpoint, over time, healthy platforms can pale in comparison to the revenue pool created for the partners betting on the platform.

Microsoft’s Windows business is a great example.  According to MSFT’s Annual Report, the Windows division pulls in roughly $16B in revenue, and makes >$12B in operating income.  (What a machine!)  This is awesome.  What is also awesome though, is that you are probably talking about an order of magnitude in terms of the amount of revenue that the partner ecosystem makes. 

Same thing with Google.  Massive revenue, massive margins.  But the amount of money that advertisers are making through getting direct contact with users, massive.  Facebook, starting to show the same thing.  Its an awesome thing on its own, but as Zynga, Playdom and others are showing, they are making massive amounts of money on the Facebook platform.  As Facebook extends, I expect to see even more companies making more money off of them.

This brings us back to Twitter.  As I’ve said before, its easy to think that Twitter is too simple to be a viable business.  That’s wrong-headed.  Twitter is en route to becoming the platform for the real-time web.  As I’ve said, it will create massive value for its users, employees, founders, and investors.   To me, the key quesiton with Twitter is not whether it will continue to thrive in users and traffic (it will), or whether it will make money (it will).  The question for me is whether its ecosystem will find ways to make real money, as this is ultimately a partner ecosystem’s profitability is ultimately the best way for a platform to ensure its long-term viability.

Google & China: An Operator’s View

Google’s announcement Tuesday that it was mad as hell and not going to take it anymore was its second bombshell in a new 2010.  (I count the first being the announcement of the Nexus One, which I think is very possibly a hugely important step for Google as a company.)

Instapundits leapt on the announcement.  Some–TechCrunch notably–stating that it was all about Google finding a graceful exit.  Others—Robert Scoble, SearchEngine Land Sullivan, and others, defending the move as a principled stand.  As someone who’s worked internationally on building businesses, I’m firmly in the Scoble camp.

The idea that this is some cynical move to enable Google to exit China gracefully is ridiculous.  Google is a massive public company, seeking a growth trajectory that goes for decades.  Aside from all the great points Scoble makes on his post on this–which I agree with entirely–the simple math states that Google can’t not be in China long-term.  Later this year, China will become the world’s largest economy that is not the United States, etc.  Huge potential market. 

The second piece to this equation is that its not as though Google’s pouring so much money down a hole with China that earnings are hurting.  Indeed, Google’s trajectory on cash flow, earnings, etc., all are moving in the right direction.  Earnings calls don’t lead Google’s CFO to fend off nervous investors, anxious at the out of control spend in China.  Huge potential market without materially impactful investment—sounds like something Google would want to do. 

So that cost/benefit analysis is straightforward.  The other element to this though that’s been missed is simply that international business is hard.  In Silicon Valley, we like the narrative of overnight success.   And to be sure, Google has achieved unprecedented things in its 11-12 year existence.  Still, Google has been in China for 4 years.  The time between Olympics; the length of most people’s undergraduate career.  That Google has not convincingly “won” in that timeframe is not at all a sign that the race is over.  At least it wouldn’t be to anyone who’s ever built or worked on a business overseas.  With international businesses, you have a whole set of issues around who to hire, how to implement a culture that retains the specific elements to the native culture while still being connected to the headquarters, there’s often differences in business models or price sensitivities of customers, etc., etc., etc.  4 years is the blink of an eye for this type of thing.  The idea that Google’s crying uncle at the end of 4 years because China is just too hard a market to win is quite naive and nonsense to anyone who’s been a manager in an international business. 

Given that view, I’ve found Google’s stance really extraordinary.  It will be fascinating to watch the dialogue between China and Google as this conversation progreses.