Blogging More

I wrote my first blog post for DavidCrow.ca, roughly 11 years ago on the day Douglas Adams passed away from a heart attack.  It is hard to believe that I have been doing this unsuccessfully for 11 years. Strangely, I had my heart attack roughly 5 years later on May 30, 2006, maybe heart trouble is the common thread through my blog.

I need to get in the habit of blogging more. I have been woefully neglectful of my blog. Unlike Joey, who seems to have found time to blog multiple times per day. I need to follow the advice of Mark Suster and Fred Wilson (more), and just make blogging part of my daily activities. (I probably need to try to make other things like a walking desk part of my daily activities too). I’ve written a lot of posts for StartupNorth, but I haven’t been as dedicated to my own blog.

Here are some of my favorite posts:

 Back to it I guess.

Meet with me in Vancouver

Grow Conf, Aug 19-21, 2010 Vancouver, BC

I’m heading to Vancouver for the Grow Conference. If you’re a startup, an investor or a service provider in Canada you should be at this event. Read my Top 5 Reasons to go to Grow. (Random note: I’m surprised that Peer1 or Q9 or MyHosting or iWeb or RackForce didn’t see this as a potential sponsorship and marketing event. Further evidence that tech startups are the Rodney Dangerfield‘s of Canadian businesses).

Bootup LabsI’ll be in Vancouver Monday, August 16 through August 20. On August 19 & 20, I’ll be at Grow Conference (I am currently open for breakfast on the Thursday August 19 if you’re interested). I am staying downtown so if you’re up for breakfast, lunch or dinner and you want to talk startups, product/market fit, marketing, BizSpark, technology, or better yet if you can show me where to get a bourbon manhattan. I’ll be working out of Bootup Labs, 163 West Hastings Street – Suite 200, Vancouver, BC and WavefrontAC, 1055 West Hastings Street, Vancouver BC.

I’m looking to talk to entrepreneurs, intrapreneurs, investors, policy makers, technologists and designers. I’d love to learn about new companies in Vancouver that are:

  • Building on the Microsoft stack including Azure, SQL Server, Silverlight, Windows Phone 7, IE9, and other emerging Microsoft technologies. I’m happy to chat about BizSpark and other programs available for startups.
  • Not building on the Microsoft stack, I’d still love to talk to you. I’d love to learn about your choices whether they be PHP, Rails, Android, iPhone, AppEngine, BigTable, Hadoop, Solr, Cassandra, RIAK, VoltDB, open web, etc.
  • Startup fund-raising and Vancouver. I’d love to get an entrepreneurs take on the funding scene. What’s it like to raise capital form W Media Ventures, GrowthWorks Vancouver, VanEdge. Who are the angels? What works? What’s broken?
  • Pitching StartupNorth. We get a lot of submissions of standard press releases. I’ll tell you what works in getting our attention and maybe this can help you get the attention of other bloggers and more credible press.
  • How to demo like a demon! I’d like to see entrepreneurs demo their wares. Come show me your software, the coolest thing about your solution, something that changed your life. Real software always makes me happy.
  • Emerging business models and go-to-market strategy – I’d love to talk about new pricing models, new consumer advertising models, economic and growth models that will allow startups to monetize and survive.
  • Health 2.0 – I’d love to see startups in the patient care space, new health tracking, personal health informatics, aging population support. I think this is a fantastic market segment, though highly regulated, but it’s a area that I have a personal interest in.
  • Social CRM – Microsoft just release CRM5 (ok CRM 2011). Salesforce continues to evolve their platform. There are new competitors like Jive and Lithium. I keep looking at HighRise and BatchBook for my personal contacts. Love to chat about the space, the players, what customers are looking for, etc.

These are all just suggested topics. I’m in town, I actually don’t have an agenda for 3 days.

Find time on my calendar and book a meeting with me at tungle.me/davidcrow


Top 5 Reasons to go to Grow Conference

Grow Conf, Aug 19-21, 2010 Vancouver, BC

  1. It’s Silicon Valley in Vancouver
    How can you ask for a better lineup of people? You get the opportunity to interact and connect with Lane Becker, Rob Chaplinsky, Dave McClure, Dan Martell, Jeff ClavierDebbie Landa, Chris Albinson and others. This is a world-class list of angels, investors, entrepreneurs and technologists.
  2. It’s Canadian startup royalty
    Royalty is the wrong word. But it’s a chance to get inspired by some of the best Internet startups in Canada. The event is sponsored by the C100 and Debbie Landa, Chris Albinson, Rob Chaplinsky, Lane Becker and Dan Martell are all Canadian. But it’s the connection to all of the others attending and speaking that is most valuable: Rick Segal, Boris Wertz, Mark MacLeod, Danny Robinson, Amar Varma, Chris Arsenault, Steve Woods, Leonard BrodyJonathan Ehrlich and all of the others that will be involved.
  3. Tickets are cheap
    The super early bird tickets were snapped up. Regular tickets are only US$285. It’s not a lot of money for an event. When you consider that food alone is approximately $15 breakfast + $10 morning break + $25 lunch + $10 afternoon break + $30 cocktails = $90, so your ticket is only costing you $195. You might not like my pricing but I can tell you that WiFi at the MTCC is $30/connections. There are hard costs to running an event.
  4. The food
    Vancouver has some of the best food in the world. Tojo’s, Vij’s, Blue Water Cafe, ReFuel, Gotham Steakhouse, Joe Fortes, Lumiere. The list just goes on and on. If you’re creative you can do this on a budget, step one follow someone who is on an expense account or has already had atleast one successful startup.
  5. The Vancouver peeps
    There are some great entrepreneurs, technologists, designers and thinkers living in and around Vancouver. Ben Skelton, Dave Olson, Kris Krug, Meg Cole, Danielle Sipple, Avi Bryant, Andre Charland, Boris Mann, Dave Shea, David Eaves, Kate Trgovac, Alexandra Samuel, Gordon Ross, Jason Mogus, Dick Hardt, Rebecca Bollwitt, Tod Maffin and others. 

And the unwritten sixth reason to attend, though many will tell you this is a reason to avoid, I’ll be there.

From out of the ashes

Reposted from my StartupNorth post:

Photo by Timm Suess http://www.flickr.com/photos/lord_yo/3493740271/in/set-72157617600789670/
Photo by Timm Suess

Is there any questions that the Canadian venture captial industry is in turmoil? There is a change that is happening, it might just not be happeing as fast as it could. Mark McQueen talks about the the creative destruction of the VC industry in Canada.

“There’s no robust “new class” of VC firms coming in behind the current oligarchy, with a similar amount of capital to deploy as those they are planning to replace. We are witnessing the destruction piece of the equation, for sure, but not the rebirth that is the essence of “creative destruction” if it is to succeed.” – Mark McQueen, Wellington Fund

While there are a few new players entering the market (I’m looking at you ExtremeVP and Mantella VP), we’re seeing a lot of roadkill. There are firms that are not able to raise their next fund, partners that are on life support, startups that are left to wonder what happen to their partners in raising additional capital. However, many that remain are digging in and fighting for their way of life. They are lobbying for support to “manufacture an environment that is hospitable to their investment style”. Adam Adamou at Caseridge Capital Corporation argues that the existing venture players, the Canadian VC oligarchy, has successfully lobbied for restrictions that have kept out new players including the public/private venture capital that was used to fund RIM.

“The traditional venture capitalists see themelves as the founders of a “Silicon Valley North” and they follow the US trends, which unfortunately do not apply to our Canadian market. They seem to see themselves as avant garde investors in tomorrow’s technology companies, however, they behave more like bankerss[sic] – preferring security and downside protection over opportunity”

Yikes, that’s a damning review of the Canadian venture industry. However, I’m not sure that the suggested alternatives including Capital Pool Companies and the TSX-V are really better choices for Canadian entrepreneurs (or investors). (I’m not an expert on CPCs or TSX-V but when my friends and trusted advisors like Mark McLeod provide commentary, I listen). What I took away from The Adamou Rant is that many of the funds have a vested interest in the maintaining something akin to the current system. Governments should look critically at the numbers being presented and who is presenting them.

The State of a Nation

Is the sky falling? What is the state of venture capital in Canada? Is it really this bad? And why does it matter to early-stage entrepreneurs? Should we all just move to Silicon Valley, New York City, Boston or somewhere else?

The Canadian VC environment has been challenging for a lot of entrepreneurs. As entrepreneurs, you need to understand the environment that you will start, fund, and grow your company. Canada has a strong track record of access to capital, a stable economic policy and should be a great spot for entrepreneurs. It’s also unique. Canadian companies tend to be at a later stage of corporate development and raise less money than their US counterparts. I’ve written about the impact of the state of the funding environment has on startups. And what entrepreneurs can contintue to expect to see, includes:

  • The number of investors will continue to decrease
  • Valuations will continue to decrease
  • Customer uptake will be slower
  • Need to become cash flow positive
  • Acquiring entities will favour profitable companies

Mark McQueen provides the best summary of state of the Canadian Venture Capital landscape I’ve seen in a while:

  • VC investments in Canadian firms hit a 14 year low in 2009
  • US venture market saw US$18 billion invested in 2009, Canada saw only $1 billion (5.5%) our economy is approximately 12.5% the size of the US economy
  • Up to half of current Canadian VC funds will not be able to raise their next fund
  • Ontario government has sunset the $1 billion Retail Venture Capital Industry
  • “Section 116″ was fixed in the 2010 Federal Budget, however, this is not a silver bullet
  • 117 disclosed cross board investments since January 2008 (this includes Canadian investments in US companies)
  • Canadian Fund of Funds have lots of capital to invest in foreign led funds: EDC ($1.2 billion); Teralys ($700 million); OVCF ($205 million)

A New Hope

We need to hope that from out of the ashes will emerge a better funding environment for Canadian entrepreneurs. Whether this is led by new funds, angel investors, US funds, or the existing players learning from their mistakes, it doesn’t matter.

We’re starting to see a strong set of the big players making acquisitions across Canada:

Our startups need real capital to continue to compete on the world stage. But They can’t survive on SR&ED credits alone. We need to hope that this creative destruction happens quickly, so that something can rise from the ashes and we can witness the rebirth of the Canadian tech startup.

Bright lights, big names

Win7 Employee Event

I’ve been thinking about Toronto. It’s almost 4 years since TorCamp and the first DemoCamp. The tech scene has changed significantly since I first posted BarCamp Toronto in September 2005. People are paying attention to Toronto. Just look at the past few weeks, we’ve had Dave McClure, Steve Ballmer, Hugh MacLeod, First Round Capital, Dharmesh Shah, Joel Spolsky, Yossi Vardi and others all in Toronto. There something going on here.

There are startups. They are raising money. They are hiring. They are doing great work. Have you checked out:

There are a ton of startups in Toronto. We have new corporate venture funds, there are incubator programs, there is something in the water. The best part is that there are great companies in Montreal, Vancouver, Waterloo, Ottawa (all across the country really, I’m looking at you Radian6 in Fredericton). It’s be a great four years since the start of this community thing in Toronto. Canada has always been a great place to live. Now it’s starting to be a great place to be a tech entrepreneur.

Hockey sticks and consultants

Reblogged my StartupNorth post. Comments available on StartupNorth.

Exponential Growth Curve

I’m always giving consultants a hard time. It’s not that I dislike consultants. It’s not that I think that consulting is a bad business model. It’s that a consulting model is very difficult to get exponential growth. You know that hockey stick growth curve, well it’s actually an S-curve but early it looks like a hockey stick, that is so important. I’m talking about real numbers, not projections. Revenue. Users. Customers.  (Need help figuring out what you should be tracking? Go read Dave McClure’s AARRR! Startup Metrics for Pirates). And go read Mark MacLeod about why compound growth changing your funding requirement.

Consulting is a linear growth business. It grows based on:

  • # of consultants billing
  • # of billable hours
  • hourly rate

Unfortunately, all of these are limiting variables. There are examples of very profitable firms and corporate structures that enable a very profitable model. I’m not discounting the profitability of the Big5 consulting firms. Consulting firms are generally limited to the number of consultants. Corporate culture are defined by the people.

The number of billable hours is a limiting factor. There are only 8760 hours in a year. You can’t work every hour. You can’t bill every working hour. It’s just not possible. Billable hours are the currency of consulting and legal firms. Many firms require 1700-2300 billable hours/year. Just think about this: 2300 hours/year =  46 billable hours/week + 2 weeks of vacation. If you assume a 80% utilization rate, i.e., 80% of your time is billable and 20% is on overhead/email/meetings/etc.  To achieve 46 billable hours you need to work 57.5 hours per week.

Hourly rate is generally set by the skill set and the market. Flippa. Rentacoder. 99designs. crowdSPRING. Elance. There are others willing to do it for less.The market determines a consultants hourly rate. 

So for an independent consultant billing at $200/hour on a 57.5 hour work week at 80% utilization would have revenues of $460,000/year. This is an extremely high rate. Looking at the NASDAQ 100 using Cognizant averages $35,892 versus Apple ($1,014,969), Ebay ($551,049), Microsoft ($663,956) and others. This might be a little extreme. Don’t believe me, Hoovers.com suggests that IT/software consulting has average revenues of $160,000/employee (MarketResearch.com has this closer to $100,000/employee). Realistically the easiest way for a consulting firm to achieve exponential growth is to grow to the number of consultants working. And the risk of exponentially growing the number of consultants is that you kill the culture that attracts many people in the first place.

“But isn’t the consulting company itself startup? No, not generally. A company has to be more than small and newly founded to be a startup. There are millions of small businesses in America, but only a few thousand are startups. To be a startup, a company has to be a product business, not a service business. By which I mean not that it has to make something physical, but that it has to have one thing it sells to many people, rather than doing custom work for individual clients. Custom work doesn’t scale. To be a startup you need to be the band that sells a million copies of a song, not the band that makes money by playing at individual weddings and bar mitzvahs.” – Paul Graham

That said, consulting is a great way to take the risk out of a startup. The best consulting projects are the ones where you can build the software you want to sell as a product. This assumes that you have necessary legal agreements where you retain ownership of the intellectual property created during the consulting gig. This is often referred to as “bootstrapping” (read Paul Graham’s Fundraising Survival Guide to understand the tradeoffs).

There’s nothing wrong with consulting. It’s a perfectly viable career. It’s a perfectly viable business model. But do the math, it doesn’t scale like a product company.

Founders versus early employees

My latest post over on StartupNorth. Comments enabled at StartupNorth.

Not everyone can be a founder. We talk about the founders of startups and companies. We focus on the founders. The founders get press coverage. They get invited to speak at events. Sometimes they get rich. But for every founder, there is an early employee that takes near equal risks in joining an early-stage company.

Steve Blank divides the individuals associated with startups as:

  • Founders
  • Early Employees (Employees # 1-25)
  • Later Employees (Employees # 26-125)

The majority of his division is about the temperament of the individual as related to risk and dealing with chaos and uncertainty. Not every one can be a founder, i.e., can you imagine trying to start a company with 10,000 people? It’s just unfeasible.

“Being an early hire at a startup gives an individual the ability to make tremendous impact on an organization as it grows – and both the founders and those hires should know it.” David Beisel

We need to celebrate the employees at startups. We need to make sure that early employees are compensated, incented and rewarded for their decisions to join startups. Early employees have a huge impact on the growth and culture of a company.

How do you compensate early employees? Paul Graham provides a model for calculating value. As Naval points out that you still need to pay employees market rates, but with all employees you need to ask yourself “whether she [a new hire] is likely to increase the next round’s share price”. This should force companies to think about building value with each early hire, and not just filling a position.

Title Range (%)
CEO 5 – 10
COO 2 – 5
VP 1 – 2
Independent Board Member 1
Director 0.4 – 1.25
Lead Engineer 0.5 – 1
5+ years experience Engineer 0.33 – 0.66
Manager or Junior Engineer 0.2 – 0.33

Table 1: Options Grants in Silicon Valley for Series A from VentureHacks

The numbers from VentureHacks are guidelines. They are rough estimates.Any one have sample option grants in Canada? Are the percentages different? I would assume that they are very similar but given the lower valuations and this may change the salary/options mix.

Remember the goal is to incent early employees to have an emotional ownership of the product and company they are building. Equally said, potential employees need to understand what they are getting into. Darmesh Shah has a great list of insights for employees joining early stage companies. Early employees are critical for startups, and we need to recognize that not everyone can be a founder.

I would love to hear your thoughts on being a founder or an early employee.

 

Additional Resources

Pitching fastballs

Reblogged from StartupNorth

“Do you have some time for a coffee or beer to chat about my startup?” – Anonymous entrepreneur

I’m happy to talk to entrepreneurs, learn about your startup and even help you out if I can. Since I have a bad habit of over committing and taking on too many activities. Let’s see there’s DemoCamp, Founders and Funders, StartupEmpire, my job (yes, I work at Microsoft), and a personal life (think 2 kids under the age of 2). Things are chaotic and busy, I’m starting to ask entrepreneurs to help me. So without more information, the answer to the above question is “maybe, help me understand why we should me”.

This sounds familiar. It’s similar to the problem faced by investors (made more pronounced with time-constrained applications), and journalists, and customers.

“If we get 1000 applications and have 10 days to read them, we have to read about 100 a day. That means a YC partner who reads your application will on average have already read 50 that day and have 50 more to go.” – YCombinator How To Apply

We talk about an Elevator Pitch. Except this isn’t a world where you might have forced my focus of attention by being artificially trapped in an elevator. The goal is like a newspaper headline. It’s to make me read the rest of the story. You need to stand out. You have to be able to simply, clearly convey what your startup is going to do. The YCombinator team do a great job describing what they look for in How To Apply. The initial filtering criteria for a YC application are obviously different than the criteria that journalists use to find stories, and different that what I use when determining to take a meeting or how I can help a startup. But the process is the same.

“What is your company going to make?" This isn’t the question I care most about, but I look at it first because I need something to hang the application on in my mind.

The best answers are the most matter of fact. It’s a mistake to use marketing-speak to make your idea sound more exciting. We’re immune to marketing-speak; to us it’s just noise.” – YCombinator How To Apply

This is about stand out from the pack. And helping the reader/journalist/audience member figure out who you matter to and why. Think of this as demand generation. You’re driving awareness and interest in your company, your team, your solution. The number one key is to be empathetic to the person whose attention and imagination you are trying to capture. Put yourself in the shoes of your intended audience, and help them understand what is special about your company, your product, you.

“Boil down your elevator pitch to one sentence. Tell us what you sell or do in very concrete language. This sets the context for the rest of your presentation.” – David Rose

Here’s an attempt to write that opening description for a few local startups.

  • FreshBooks is a QuickBooks killer. It is a web-based accounting system allows small businesses to have accurate, professional estimates, time tracking, and invoicing.  
  • Well.ca is Canada’s online drugstore. Strong sales growth over past 3 years, raised $1.1M from angel investors in July 2009, technology focused with strong customer service.
  • Rypple is a web application that gathers anonymous feedback from anyone. Peter Thiel is an investor. Founders have a strong track record at Workbrain.
  • Dayforce is an rich internet application and web service that allows managers to visualize and plan their employees schedules and the employees to enter their timesheets. Founders have strong track record including Workbrain.
  • Kiiro is a social project management application built on SharePoint. It uses the web and Microsoft Project to improve collaboration between the project managers and the team on larger projects.
  • CoverItLive is web application for live blogging events. Companies, conferences, individuals can connect photos, tweets, live video, and rich media during events.

This is just the beginning. But that is the point. The goal is to entice the reader to want to know more. Ideally I’d love to see a short description of what you’re building. A clear identification about how you think you’re going to make money. What you think your secret sauce is. And a brief summary of key team members. Sound familiar. It’s very similar to the advice that David Rose provides as a Pitch Coach. The goal is to take basic pitch information and digest it into a smaller, customized components for your audience. It means that entrepreneurs are going to have stop being ego-centric and start thinking about others. You need to understand what is important to the individual that you are trying to reach and to shape your message appropriately.

For me, I want to understand what your company does/builds; the management team; the market opportunity; the business model; the stage of corporate development (pre-funded, funded, pre-revenue, etc.); why you think I care about this; and what your ask is of me. Is that too much to ask?

Open challenge to local startups to “pitch” for a meeting in a 140 characters or less in the comments (more realistically less than 420 characters – basically 3 tweets).

Resources

Rules for Bootstrapping Web Startups

Allan & Steve from LessEverything have a great list of rules for web startups. I learned a lot about # 9 at Nakama. It was all about staying just ahead of the growth curve, and near real-time scheduling. The piece that was missing from our efforts was a revenue model (who paid us for what). And I think that # 1 & # 7 are key for most web startups. Figure out who pays you and why. Then build a product that they love, that they will evangelize for you.  

  1. Build something people need and love. People will talk about it.
  2. Release, release and release. Release it before you think it’s ready, you’re wrong, you don’t need that feature.
  3. Your app will probably fail, most of them do.
  4. Be Ballsy, don’t follow the herd, make a courageous moves.
  5. Build something you want to use. Continue to use it, feel the user’s pain.
  6. Google Adwords isn’t a revenue model.
  7. Find the cheapest, fastest way to 500 paid users. People will pay for your app, if it’s good.
  8. Design is an iterative process, not just development. And you won’t get it right the first time, so don’t sweat so much.
  9. Don’t scale until you actually need to. (The front page of Digg does not count as need.)
  10. Don’t spend any money.

Built to Exit

Originally posted on StartupNorth.

Image by konstriktionIs a company that is built to exit the same as a company that is built to flip? Not in my opinion. Understanding how to build a company that is attractive to a potential acquirer can help entrepreneurs understand how to build product suites, acquire customers and pick technologies.

Possible Exits

Entrepreneur.com list five (5) possible exit strategies:

  1. The Modified Nike Maneuver: Just Take It (basically preferred shares that pay a huge dividend)
  2. The Liquidation
  3. Selling to a Friendly Buyer
  4. The Acquisition
  5. The IPO

For me, #3 and #4 are almost identical. And #2 is not something you should aim for just staring out. Liquidation is something that happens at the end of your business. Whether it is something that happens in bankruptcy or other it is not a useful model when you are trying to grow a business. So if you merge #3 & #4 it leaves you 3 realistic exit strategies. This is not rocket science.

  • Operate profitably
  • Get acquired
  • Go public

We know what the IPO market for tech companies looks like. That leaves companies with 2 choices. Build a profitable business or get acquired.

When I talk to startups everyone seems to think that acquisitions are a dime a dozen. That even based in Toronto, Montreal, Ottawa, Waterloo that they are prime acquisition targets for Microsoft, Google, Oracle, Cisco and other Valley companies. Which surprises me! Sure all of these companies have done Canadian acquisitions, they are the exception and they are done for very specific reasons.

Why acquire a startup?

Benjamin Kuo talks about the takeaways looking at the acquisition deals done by Google, Microsoft and Yahoo. The other companies that have done a lot of acquisitions include Oracle and Cisco. Summarizing the 2007 Microsoft acquisitions including Multimap (mapping), Global Care Solutions (healthcare), Palarno (enterprise chat), AdECN (advertising network), aQuantive (public traded – advertising tech), TellMe Networks (mobile voice solutions), and Medstory (health search), he concludes:

Key takeaways from this, at least if you want to be acquired by Microsoft: you really need to expect to be in business for at least seven to 10 years; you need a lot of traction and a product that people have been using for awhile; enterprise software is hot, consumer web services are not; and you need to have a fit to their strategic plans.

Companies get bought for a variety of reason:

  • technology;
  • customers;
  • people/talent;
  • the scale for monetization offered by a corporate giant.

It starts to make a very short list for entrepreneurs about what’s important regardless of the type of exit you’re looking for. You need to have technology, customers, the right talent and a path to monetization. Companies are looking for technologies that solve problems with shared customers and that round out their offerings (then there is a the whole question about do we build it or buy it). They are looking for great teams of engineers, sales people, designers, i.e., the talent. And often large public companies bring a scale and access to market and manufacturing that are just not available to startups without huge amounts of cash. 

Does this all sound familiar? It’s pretty similar to investment criteria. There’s nothing wrong with building defensible technology that solves a problem for customers with a team of rockstars on a common technology platform.

Comments at http://www.startupnorth.ca/2009/06/11/built-to-exit/