David Crow

Startups

Blogging More

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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

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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

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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 Clavier, Debbie 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 Brody, Jonathan 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

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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

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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

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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.