Entrepreneuria

An Ode to the Valley

2012-01-21T21:35:00.000-08:00

I loved reading Justin Rosenstein's inspirational, heart-felt post Do Great Things on TechCrunch this week. It talks to the same "Death of Big Ideas" phenomenon I blogged about after visiting SXSW Conference last year, and makes a powerful case for why the pursuit of Big Ideas by us, the privileged members of the Valley tech community, is a moral imperative.

You must read Justin's piece in its entirety, but as a preview here are some of my favorite quotations from it:

Technology, community, and capitalism combine to make Silicon Valley the potential epicenter of vast positive change.

And with increasingly severe threats to our survival — rapid climate change, an unstable international economy, and unsustainable energy consumption — it is more important than ever that we... change the world, foster happiness and alleviate suffering, for us and our fellow beings.

[I]n the face of threats to humanity’s future on the one hand and the extraordinary potential of mankind on the other, at some point we must ask: are we capable of more?

Life is short, youth is finite, and opportunities endless. Have you found the intersection of your passion and the potential for world-shaping positive impact?

Don’t lose the fire you started with. If you’re going to devote the best years of your life to your work, have enough love for yourself and the world around you to work on something that matters to you deeply... in order to do great things, we must attempt great things.

Why Are Kids Losing Interest in Entrepreneurship?

2012-01-21T13:24:00.000-08:00

As you can judge by its title, this Forbes article posted more than 2 months ago is quite troubling: Kids Lose Interest in Entrepreneurship as They Get Older. In this article, Forbes peeled back the onion on an otherwise rosy 2011 Gallup poll on entrepreneurship to find that

While 65 percent of fifth and sixth graders plan to start a business, only 34 percent of high school kids do. (see graph below)

Thus, somehow as a country we lose 50% of our total entrepreneur population in middle school! And what troubles me even more is the lack of any substantive or serious discussion on this (critical) topic by any politician or educators.

What is amiss?

The Forbes article takes a stab at a response:

For insight into why older kids are less likely than younger ones to plan to start businesses, I turned to my resident expert on what kids think – my fourth grade daughter Hannah. Hannah’s explanation was that kids learn about alternatives to an entrepreneurial career as they get older. As kids become interested in other jobs, the share that plans to start a business declines.

But with all due respect to the author's fourth grade daughter, this does not seem to get at the heart of the issue. In my own childhood experience and that of most toddlers, the various white collar and blue collar professions are the first "jobs" that kids get exposed to: Firefighter, Police, Doctor, Nurse, Mechanic, Pilot, Flight Attendant, Captain, Cashier, Factory Worker (especially if chocolate is involved), Factory Manager, Actor, Actress, Ballerina, Athlete, Teacher, etc. Instead, what I think is the culprit here is the fear of failure that a lot of educators instill in children that turns otherwise adventurous souls into scared puppies.

It has been a truism for a long time that small businesses and entrepreneurs are the engine of growth of our economy. Yet, it seems that somehow our primary education system systematically manages to kill the very engine of growth we are trying to fuel. What do you think? Can we do a course correction? Any and all solutions are welcome!

It's the Semantics, Stupid!

2012-01-12T23:14:00.000-08:00

A Matter of Semantics

I have to take a deep breath whenever someone brushes aside an argument as one over mere "semantics", as if there is a "reality" out there unperturbed by our linguistic filters. After all, "Why argue over words?" goes the common adage! And although that kind of attitude may temporarily get us out of a heated argument and allow the parties to save face, cool off, and part amicably, it is completely counter-productive when it comes to making one of the most important decisions about your startup, which is formulating its strategic positioning.

Why Strategic Positioning Matters
Coming up with the right positioning for your startup is at least half the battle (if not most of it)! For one, I have been involved with several startups where a change in that elusive positioning statement was the single most important contributor to its ultimate success or demise.

If you think I am exaggerating, monitor your own gut reaction to the following positioning statements: "to help people find the most relevant websites for their search queries" versus "to organize the world's information and make it universally accessible and useful". Do you think Google would have been as successful in building a world-class team with the former statement, even though semantically they are basically referring to the same underlying algorithm (aka, PageRank)? Or would you feel the same about a company that aspires to be "the best website creation tool" versus one that aspires to be "the world's leading tool for small businesses to get online and grow their business", despite having the same technology? In fact, at Webs, where we made that exact change in our mission statement 18 months ago, we set in motion a positively reinforcing set of events that led to the successful exit of the company last month.

The Critical Role of Words
As the examples above illustrate, when it comes the positioning statement every word counts, as does the emotions they evoke individually and in combination with the other words in that statement. Choose those words carefully as each evokes a different mental state (e.g., "male sibling" evokes very different feelings from "brother", despite referring to the same person).

Marketers are fully aware of this and spend endless hours on crafting the right slogan(s) and testing them against the audience. You can run your own experiments online by spending a few dollars on some Google ads and comparing variants of saying the same thing; can be quite fun!

When taken seriously, coming up with the right positioning statement by choosing the right set of words is not a trivial task; but once you get that single statement right you will see how much easier it is to recruit, raise money, motivate your team, and even set product development priorities.

Products "R" Features

2011-11-01T21:09:00.000-07:00

As a freshly minted Associate at a venture capital firm in early 2000's, I recall that one of my criteria for evaluating investment opportunities was figuring out (with analytic precision, of course) whether a particular startup was really a "product" or a "feature"... Turns out that was a totally futile (if not counterproductive) exercise!

So many of today's über-successful startups in fact are nothing more than features. Google started out as a feature inside a portal (Yahoo) and who knows, may end up being a feature inside a social network or mobile device 5 or 10 years from now. And look at all these neat features on your smart phone called Apps! Wouldn't you have loved to invest in some of the popular ones, like Angry Birds?

I think the traditional problem with investing in "feature" companies is the concern that a "product" company in that industry, with its seemingly infinite resources, can one day easily roll out that feature and crush that "feature" company. Sort of like how Apple crushed (wink, wink, nudge, nudge) Siri to the tune of over $200 million and Google crushed YouTube for $1.7 billion...

Suffice it to say, lots of great VC investments can be made in things that may be considered mere features today, but will end up being far more revolutionary and game-changing than many products in the market. In the long run, we will all be dead and all products become features anyway!

Beware of "Happy Talk"

2011-11-01T00:46:00.000-07:00

Nothing scares me more than Happy Talk, even on Halloween. We've all had our encounters with it. You know Happy Talk as soon as you hear it. And it makes our skin crawl...

It usually starts with "Things are going great! Best times ever! Tons of traction! Gods are smiling upon us!" and ends on similar upbeat notes "Couldn't ask for more! Just tryin' to keep up!" You catch my drift... SPOOKY!

Now, I am all for enthusiasm, positivity, and faith even in the face of severest hardships. Every entrepreneur needs to have those elements as a part of their M.O. or sooner or later will give up entrepreneurship for at least a steady income (if not peace of mind). However, it is one thing to be positive, and completely another thing to lull yourself into thinking that things are positive by ignoring the negative.

The danger with Happy Talk is our mental predisposition towards what psychologists broadly label as cognitive dissonance, the tendency of our brains to interpret reality only in the way that fits our thoughts and attitudes about it. Confirmation bias is another name for it. There are literally thousands of experiments that support this point, and they are all actually quite fun to read. For example:

An Ohio State study in 2009 showed people spend 36% more time reading an essay if that essay aligns with their opinions.

Another study at Ohio State in 2009 showed subjects clips of “The Colbert Report,” and people who considered themselves politically conservative consistently reported “Colbert only pretends to be joking and genuinely meant what he said."

So, the same mental processes kick into gear once you engage in Happy Talk. You start drinking your own Cool Aid. You start ignoring all those little data points that don't fit the overall positive picture you are painting. And you know what happens after that...

So, next time you catch yourself engaging in such spooky activities, take a moment and reflect on whether your attitude really matches the data. That may save the day for you!

Happy Halloween!

Steve Jobs: The Founder Archetype

2011-10-10T07:57:00.000-07:00

I started this post with a list of my top 10 favorite things about Steve Jobs, but soon realized that any such attempt is futile at best. As the Da Vinci of our time, Steve Jobs' accomplishments were not limited to a set of inventions, principles, or theories. They spanned multiple disciplines (comp sci and art, for example), multiple decades (starting with the 80's, remember the original Mac?), and will have far reaching implications into the future (wearable computing, for instance).

But the one thing that will make him forever immortal, IMHO, is the fact that he has established himself as the "Founder Archetype" for as long as entrepreneurship will exist. His passion, ambition, perseverance, dedication and determination will be that which all founders will be judged by and compared against. He has truly upped the game for all of us; and that maybe his greatest legacy!

P.S. For some inspiration on how others are preparing themselves for this challenge, you may want to read and follow #LiveLikeSteve

Chamath's Golden Rule!

2011-10-02T00:49:00.000-07:00

Starting with my first topical post on this blog, I have been praising the advantages of a high integrity culture as the foundation of a sustainable business. Yesterday's leaked email from investor Chamath Palihapitiya to Airbnb CEO, wherein he provides an eloquent reason for not wanting to participate in a financing round that does not pass his integrity test, is a great reminder to all founders and executives of the importance to stay vigilant about preserving a culture of integrity in their startups. I confess that I don't know much about Airbnb's culture, but based on some of their past notoriety in the press (see one thread on TechCrunch here), I can see how small, incremental compromises in integrity may have led to this point, and hopefully Chamath's email and the attention it has raised to this matter can be a turning point for the company.

Here is my favorite paragraph from Chamath's email, which provides solid practical advice on how to preserve integrity within your organization:

Treat your employees the same as you’d treat yourself. Do things that you will be proud of and can defend to anyone including your Board, employees, prospective hires etc. In such a competitive hiring market, you are competing with not just your obvious competitors, but also any successful tech company who is also looking for great talent. A principle that treats your employees as well as you’d treat yourself is a huge strategy for differentiation, retention and long term happiness of the exact types of people you will need to be successful. In contrast, if you are viewed as self-dealing and shady, it will only hurt your long term prospects…

The highlighted first sentence above is what I would like to call "Chamath's Golden Rule for Management", which is a great modern application of the ancient Golden Rule.

I recall that as I a lawyer I used to advise my clients against doing something they would hate to see on the cover of WSJ. Airbnb founders may find themselves in that uncomfortable position on Monday!

P.S. As full disclosure, Chamath is a good friend, personal hero, and former investor in my last startup Jaxtr, via the Mayfield Fund.

Don't Trap Your Customers!

2011-09-29T23:45:00.000-07:00

For some reason, for years traditional marketers were convinced that consumers need to be herded/forced into making the marketer's desired choice, rather than letting the consumer make an informed decision. As an obvious example, think of claustrophobic setting in pre-Bellagio Casino's, where you could look for miles and not see an exit door! For some reason, it was believed that the less the gamblers saw the possibility of an exit, the longer they would sit at the cramped gambling tables. Not sure how they may have A/B tested that hypothesis, but perhaps they were using sheep rather than people in their experiments?

And alas, this kind of thinking found its followers in the online marketing world as well. I am sure you have all had the unpleasant experience of visiting a website where the options you were looking for were more or less hidden and you felt tricked into blasting an invite to all your friends or doing something else that would evoke an "Oh-My-God-What-Did-I-Just-Do" reaction. But the days of such online shananigans disguised as intelligent marketing may soon be over.

Experiments are starting to reveal that creating a comfortable and pleasant environment for customers leads to higher expenditure by them! Jonah Lehrer recently covered one study in his aptly titled post, Why Being Relaxed Makes Us Spend More Money. I highly recommend that UI/UX designers read that post and the studies referenced therein before becoming too aggressive in creating restrictive funnels that force users to take certain online actions.

Like it or not, "culture" determines your priorities!

2011-09-25T12:56:00.000-07:00

I wrote previously on the virtues of culture as a startup accelerant (by reducing organizational inefficiencies, culture paves the path for exponential growth). However, I left out a crucial effect that culture has on shaping the startup's actual output: namely, that the startup culture manifests itself in the products & services the startup creates.

Here is how:

The entrepreneurial process is the result of making prioritized decisions based on a seemingly infinite set of tasks. Anyone who has spent time at a startup is familiar with the overwhelming (and ever increasing) amount of tasks that can only be tackled in a prioritized fashion in order to make any real progress. The Product Managers are especially familiar with this, as they typically own this process as far as the startup's actual product features and specifications are concerned. They are the stewards of an iterative process that starts with the collection and collation of inputs from various stakeholders inside and outside the organization (including employees and end users), and ending with assignment of the most important tasks to developers and engineers for the upcoming sprint/release cycle.

The most important part of this iterative process, however, is everything that happens in between: Namely, the assignment of prirorities to the requests. And that is exactly where culture comes in since much of the priorities are driven based on the cultural underpinnings (i.e., the "gut instincts" and "feelings") of the organization. Tasks that "feel" important and critical find their way to the top of the list, and those that don't pass the gut check, keep getting relegated to the bottom of the backlog.

To the analytically inclined amongst us, however, the above may sound too fuzzy and perhaps even irrational, as they may object that a responsible Product Manager should primarily focus on the impact of various tasks on the key performance indicators or core metrics of the Product, and leave all emotions and feelings aside. However, even though I firmly believe in the importance of metrics, I have come to view that kind of rigorous analytics in product development as more or less an illusion.

There are many reasons that metrics alone cannot lead to real product decisions: First, the immediate impact of most development tasks is best an estimation and not known prior to release; second, there is usually more than one metric that is impacted by any given product change, and most organizations don't have a strict formula for how to trade off various metrics against each other; third, long-term impact of most product changes are inherently unknown; forth, most startups do not have a formula on how to weigh long term effects against short term effects; and so on and so forth. Product decision makers are dealing with very complex, multivariate issues, things far beyond the capability of the human brain. There is mounting evidence from experimental psychology that it is exactly situations like this where our emotional brain kicks into gear, and helps us make decisions based on our values (for a highly engaging and informative survey of the latest research in this area, I encourage you to read How We Decide by Jonah Lehrer).

And that's exactly where the startup culture makes its imprint on what it produces.

For instance, if "user experience" is important to the culture, then things that help the user's experience will become prioritized, at times even at the cost of some core metrics such as revenue or profits. On the other hand, if "fast growth" is in the startup DNA, then you will see tradeoffs that put at risk user experience and even long term financial viability of the organization.

This is why the role of founders as the guardians of culture is so critical to the success of startups!

Are you "Michael Jordan playing Baseball"?

2011-09-04T14:08:00.000-07:00

Much more often than I like to see, I come across entrepreneurs who remind me of Jordan retiring from basketball to try his hand at baseball in 1994 (speculations abound as to why, but nonetheless he had the good sense to pivot back to basketball just after one miserable baseball season).

These days, with the consumer Internet momentum in full swing, I see first-time and repeat entrepreneurs from many fields (including law, life sciences, and enterprise software) pitching their Powerpoints and raising money for their first consumer Internet startup. And although I am usually the optimist and last guy to discourage anyone from a path of entrepreneurship, I can't help but be quite disappointed by this crop of entrepreneurs.

My disappointment stems primarily from the fact that in this new gold rush, Silicon Valley's greatest asset (intellectual capital) is wasted on futile reinventions of the consumer Internet wheel. To the uninitiated, building this shiny "wheel" may seem as simple as outsourcing a website and hooking it up with a set of "spokes" consisting of a database, Google Analytics, and a Facebook Connect integration to boot. But those who have been through the ordeal before, know better.

For starters, you need an understanding and appreciation of what it means to deliver a virtual consumer user experience that delights and transforms casual visitors to engaged users who would return and promote your services via repeated interactions. You need an appreciation of the delicate interplay between your technology platform and analytics, traffic and rapid iteration (aka A/B testing). And you need to understand how critical time is to everything you do. Which means, you cannot afford to start from ground zero and therefore, need to be able to recruit expert UI & UX designers, analysts, and developers that can deliver and improve what your users need faster than competition.

Is that impossible? Of course not, but as a first-time consumer Internet entrepreneur, your chances are pretty slim unless you bring in a co-founder that has done this in the past. Plus, you will need to recruit mentors, advisors and Board members that can shed light for you on the areas that you are lacking.

In summary, my advice to first-time entrepreneurs in consumer Internet (as well as any other field) is from the onset to

(1) talk to industry experts to map out the areas of competence that you need in-house to be successful,
(2) take an honest look at the founding team to assess which areas of competence you are lacking, and
(3) recruit co-founders/advisors/mentors/board members to fill in those holes.

Although entrepreneurship is a noble endeavor, doing it without adequate preparation is socially wasteful and irresponsible.

Culture As Startup Accelerant

2011-06-21T07:27:00.000-07:00

After all is said and done, culture is the glue that holds a society together, enabling it to overcome all sorts of difficulties. The importance of culture, however, becomes magnified in a startup setting, as succinctly put by Nilofer Merchant in a recent post on Harvard Business Review's blog:

Success is a function of Purpose, Talent, with a Culture accelerant. Or: S = (PT)^C

Culture drives that much-valued-yet-elusive exponential growth that every founder dreams for their startup. Without that certain culture, no matter how many smart and talented people you gather around the table, and regardless of how great the mission you embark upon, you are unlikely to succeed. Why? Because all those well-intentioned smart people start getting in each other's way, and sooner or later, end up sabotaging each others' efforts rather than leveraging one another, and thus slowing progress, innovation and growth.

I must admit, I have never seen a successful startup whose employees detected the existence of a "bad" or "disfunctional" culture, and plenty of unsuccessful ones where that was exactly something (perhaps the only thing!) employees could agree on.

Culture is exactly why the founders are critical to the success of their startups: They are the ones who set the culture (just by sheer chronology of events) and can either maintain or destroy it over time (just by sheer action or inaction over time). Founders who are unaware of the critical role they play in fostering a productive culture within their startups have some very hard lessons to learn. The following are some examples of "peopley stuff" (Nilofer's phrase) that founders have a direct impact on:

Level of trust between employees
Level of collaboration among employees
Time spent on politics and CYA stuff by employees
Attitude towards risk and innovation by employees
General good-will of employees towards success of enterprise
Hours that employees put in at work
Hours that employees work during the week
Hours that employees dream about work (in a good way)

And this is just scratching the tip of the iceberg!

Manufacturing Entrepreneurs

2011-04-03T09:23:00.000-07:00

I think every politician/economist in the world has by now accepted the fact that entrepreneurship is vital to long-term economic growth and prosperity. Much less understood, however, is how one would best go about creating more entrepreneurs in the society.

Do you create more entrepreneurs by copying "Silicon Valley" (whatever that means)? Do you do so by pouring more money into science education and R&D? Or by giving more tax incentives for engaging in entrepreneurial activities? Or is a liberal-arts education the missing ingredient, as Vivek Wadhwa recently suggested in The New York Times and TechCrunch?

As an entrepeneur with a liberal arts background (Philosophy, Economics, and Law), I do firmly believe that having had some exposure to the liberal arts is of great value in leading a well-rounded and grounded life. However, when it comes to entrepreneurship, I am not sure how much credit I can justifiably give to my liberal arts training. As a matter of fact, I think the role of financial incentives, sciences as well as the liberal arts in creating more entrepreneurs in a society is quite limited at best. In other words, they may be considered necessary conditions for more entrepreneurship, but by no means sufficient. This is supported by existence of plenty of countries/states/regions/universities in the world that produce excellent scientific and liberal arts scholars and provide lots of tax incentives for entrepreneurial activities (such as in Canada), but those efforts do not produce the desired entrepreneurial activity in the target population who opt for more traditional career paths.

Why? Because the emphasis on individual incentives and particular college degrees misses the essence of entrepreneurship, which is fundamentally a social activity and therefore mostly influenced by the prevailing culture. Some cultures (be it within a society, a company or a single family) kill entrepreneurship desires while others nurture and grow it. In my experience, entrepreneurship only thrives in a culture that is forgiving towards those who fail at taking entrepreneurial risk.

Wherever I have seen strong cultural punishments (e.g., guilt, shame, etc.) associated with failed entrepreneurial endeavors (as in Canada, Germany and so many other societies), entrepreneurship has been stifled. Conversely, the culture in Silicon Valley intrinsically celebrates and values taking entrepreneurial risks. Having had near-hits with one's past ventures, in the Valley, is something to be proud of (even brag about) rather than hide. Behind most successful Valley executives and entrepreneurs is usually a trail of failed prior attempts. Counter-intuitively to outsiders, past misses make an entrepreneur even more "fundable", as those experiences are deemed invaluable to VC's and Angels alike.

Regardless of whether the Valley mindset was created by amazing foresight or sheer historic accident, it is apparently exactly what our mammalian brains need to take on risk. According to a recent psychology experiment recounted by Jonah Lehrer on his blog, our brains' pleasure centers hardly distinguish between almost winning and actually winning, which explains why so many people flock to Vegas and actually enjoy throwing hard-earned cash at one-sided gambles. He goes on to provide an evolutionary explanation:

Why would the mammalian brain be designed this way? One answer is that we didn’t evolve for Vegas. Rather, near misses help us stay motivated when engaged in activities that require actual skill, and not dumb luck. Let’s say we’re learning to play basketball. At first, our shots are going to be all over the place, a seemingly random distribution of bricks and airballs. And yet, as we slowly get better, those shots will get closer to the rim. A few might even go in, which is pretty thrilling. The purpose of near misses, then, is to keep us motivated while we slowly improve our form. If we only got excited by makes, we’d quickly give up, which is why the brain also needs a mechanism to register progress.

Now imagine that you lived in a society where everytime someone missed the basket during training or in a game, they were boo'ed off the court or worse yet, threatened that they could never play basketball again. How many star basketball players would that society produce?

Just like in professional sports, entrepreneurship requires "actual skill, and not dumb luck." If the culture discourages risk taking entrepreneurial endeavors by punishing those who fail at it, then you start messing with those brain centers responsible for motivating people to become entrepreneurs in the first place. In which case, no amount of rewards, tax incentives, scientific or liberal arts education can motivate people to get in the game and start practicing.

What's So Wrong with Arrogance?

2011-03-29T23:10:00.000-07:00

I have always had a negative gut reaction to arrogant/overconfident people. In popular culture, however, arrogance is played up as a cornerstone of success and downright entrepreneurial chutzpah, exemplified by icons such as Zuck in The Social Network, Gordon Gekko in Wall Street or Donald Trump in the avalanche of The Apprentice "reality" shows.

But I felt vindicated when in the last issue of Harvard Business Review I encountered a very interesting research entitled "Experts Are More Persuasive When They Are Less Certain" by Associate Professor Zakary Tormala of Stanford GSB. According to this research which tallied ratings of a fictitious restaurant based on a variety of professional and amateur reviews, my gut reaction to arrogance has been spot on with majority of folks:

[We] asked subjects what they’d pay for a meal at our fictitious restaurant, Bianco’s. People who’d read the tentative professional review were willing to pay 56% more than people who’d read the highly certain professional review. But uncertainty had almost the exact opposite effect with amateur opinions. People who’d read a confident amateur review were willing to pay 54% more for a meal than those who’d read an uncertain amateur review.

Professor Tormala attributes this phenomenon to "expectancy violations":

People expect experts to be confident. Violations of that expectation surprise them. We see that in our data. Subjects reported being more surprised by the uncertain experts and the confident amateurs. A surprise draws you in and makes you pay more attention. It gives the review more impact.

I also think there is another phenomenon at play, which for a lack of a better word I call "Car Salesman Phobia". On a deep philosophic level, we all suspect that there is really no certainty in life. So whenever someone starts to come across too strong about anything, our intuitive alarm bells go off that this person may either have an ulterior motive (like a car salesman) or be so amazed by themselves that they are not checking their own blind spots. Those alarm bells are somewhat muffled when the expert starts admitting that there is room for doubt and further research.

So, you may ask, why is it that when amateurs show confidence we tend to trust them more? This, I believe, is due to the fact we start at such a low trust level with amateurs that their admission of certitude (or anything else other than total ignorance) is a relative improvement.

In conclusion, next time you are pitching your company to an investor or new hire, think about whether or not the person you are talking to would consider you an "amateur" or "expert" and then act with respective dose of humility,

What do you think?

Innovation Déjà Vu (or The Idea Clone Wars)

2011-03-20T14:47:00.000-07:00

I think we are all too familiar with how every now and then several Hollywood movies come out with the same basic plot in relatively short succession. Here are some of my favorites (not in Oscar-worthiness, but in how much of a clone the movies are of each other):

Matrix, Dark City, & Thirteenth Floor;
Deep Impact & Armageddon;
Antz & A Bug's Life;
Finding Nemo & Shark Tale;
The Truman Show & Ed TV;
Volcano & Dante's Peak;
War of The Worlds (with Tom Cruise) & War of The Worlds (without Tom Cruise);
United 93 & World Trade Center;
etc.

This, of course, is not a coincidence as pointed out in a study published in this 2006 Whittier Law Review article by IP attorney Igor Dubinsky:

Movies arise from scripts, scripts arise from ideas, and while ideas, as Justice Brandeis noted, are “free as the air,” they must be nurtured by authors to present any real value. Once an author gives birth to an idea for a story or movie, he develops it and then attempts to sell it to a movie studio. If the author can secure a meeting with a studio executive, he presents his idea at an “idea-man” presentation. Alternatively, the movie script can be submitted to a studio via mail or a third person.

On the average, movie executives receive over 20,000 movie and TV show ideas per year, but only review 6,000 of these, many of them over meals with executives from other networks. Movie ideas come from various sources including Sunset Boulevard, network executives, the studios themselves, stars and their agents, independent producers, writers, word of mouth, trade papers, and magazines... Only about 200 sample scripts are commissioned per year, and seldom are more than twenty of those
ordered.

Sometimes the person who conceived the idea for a movie script will win a meeting with studio executives, only to have the idea rejected and then rewritten and developed by the executives without paying any copyright royalties to the original author. What happens even more often is that a script author will shop the same idea at numerous movie studios, or movie studio executives at different companies will discuss with each other ideas for movies they are thinking of putting into production. These same ideas will then be developed into movies by two or more competing studios. At the box office these similar movies will come out like déjà vu, within a few weeks or months of each other.

Are the same nefarious forces at play when we see a sudden rush of group texting startups (hat tip to George Zachary for the apt tweet on this), location-based services, social commerce websites (aka Groupon clones), VoIP startups (ok, I participated in that Clone War by starting jaxtr, a "j" letter mobile VoIP company in 2005), etc?

As the parallels between Hollywood and Silicon Valley in the above excerpt are too obvious to point out, I would like to share with you a more generalized response, which is the following:

Innovation in Silicon Valley is as much a social process as is ideation in Hollywood. We need to talk to others to be able to refine and solidify all the various thoughts that swim around in our heads. The good thing about this social process is that we come up with better results because of it (a recent study points out that the best academic articles are those that are produced by teamwork rather than "solo geniuses"). The bad thing, however, is that as soon as we talk to one other person, we will have to accept the fact that there will undoubtedly be a multitude of others that will have the same idea planted in their heads and will want to do something with it. If you want to innovate, the clone wars are inevitable!

Are Big Ideas Dead?

2011-03-16T23:30:00.000-07:00

It seems that Big Ideas are no longer around, at least in the high tech community. No one seems to really care about them. No one seems to want to take on any risk to pursue them in any serious entrepreneurial way. And the current emphasis seems to have shifted towards Small Ideas that require little or no funding and leverage existing set of public API's and the Social Graph (hat tip to Angel Bubble).

I say this after days of walking the hallways and chatting up numerous entrepreneurs and VCs at this year's SXSWi Conference (the interactive portion of South By Southwest, aka The-Closest-Thing-The-Tech-Community-Has-To-Woodstock) in search of someone pursuing, or at least believing in, a Big Idea. Instead, what I found was that it has somehow become more fashionable/lucrative/fundable to create incremental changes (even to clone Groupon or Foursquare), than to try to completely break the mold and change the dominant paradigm in any field. I was hoping to see something different, something truly original and breathtaking, but all that I could see was shades of the same.

And based on other reviews of the event, I am not alone in this disenchantment with the current state of our entrepreneurial culture. Todd Wasserman has an interesting Op-Ed piece on Mashable, in which he proclaims:

"But we’re not just having an off year. We’re at a new, more boring stage in the [social media innovation] development cycle."

One very smart entrepreneur told me over drinks at SXSW that this year's Big Ideas are "The Internet and Social Networking", mocking the very premise of my inquiry, and thereby proving what I suspected all along: That we have all grown cynical of Big Ideas.

And there is some merit to this cynicism. Big Idea inventions like the Laser, Electricity, Automobile, Ultrasound, Steam Engine, Printing Press, and the Internet happen so rarely and require such a confluence of serendipity, good fortune and resources that in an environment where you can relatively easily launch and grow a company by making an incremental improvement over something already in existence (if not outright copying), then why should you bother? In fact, isn't all innovation an improvement on prior innovations anyway, and that progress is a series of baby steps? For instance, wasn't the can opener invented 50 years after the birth of the metal can itself?

True, but still I hope I am wrong about the death of Big Ideas and that there is still someone, somewhere out there pursuing something that would have quantum leap implications for humanity, even if it is a metal can waiting for a can opener. If you know of some projects along those lines, please do comment below!

Revolutionary Solidarity

2011-03-06T10:18:00.000-08:00

Solidarity is not discovered by reflection, but created. It is created by increasing our sensitivity to the particular details of the pain and humiliation of other, unfamiliar sorts of people. Such increased sensitivity makes it more difficult to marginalize people different from ourselves by thinking, 'They do not feel as WE would'. -Richard Rorty

Like many, I have been obsessively following the rapid spread of revolutionary uprisings throughout MENA on Twitter and Facebook. It is impossible to summarize one's emotions in these times, which somehow simultaneously combines awe (at the countless acts of selfless heroism), anger (at the cruelty and brutality of a few), and hope (for a better future for humanity).

As an entrepreneur, when I take a step back and look at the general trends manifested by these uprisings, I can't help but be overcome by a deep sense of solidarity and commonality of purpose with the masses on the streets of MENA. That is not just because all entrepreneurs aspire to bring about revolutionary new changes to their field, but because we all seem to be marching at the forefront of a larger, emerging global consciousness whose core values are:

1) Belief in the Possibility of Change

People join a political revolution when they reach a point where they can no longer tolerate things-as-they-are and start realizing that there is a possibility that the socio-political status quo can change. "Acceptance" and "Status Quo" are no longer deemed to have an intrinsic value (which have been the core value in traditional societies), and are in fact blamed for being the instruments of oppression and as such, responsible for much of the suffering. The Frankfurt School Critical Theorists and Poststructuralists of 20th Century (e.g., Foucault) popularized these notions in the academia, but their mass application has only recently seen the light of the day.

Similarly, entrepreneurship is deeply rooted in one's conviction in the value of change. Sometimes the change may be about making a floppy disk smaller; or a new way of using a computer or a handheld device. But by definition, innovation and entrepreneurship is all about breaking with the past and bringing about a change, sometimes risking a lot in the process (though the entrepreneurial risks pale in comparison with the dangers faced by the revolutionaries on the streets).

2) Trust in Democratic Processes

Removal of an autocratic regime and replacing it with a democratic government is among the top demands of the masses in MENA. It stems from decades-long brewing of disdain for autocratic rule by an elite few who have used the citizenry as mere instruments towards furthering their own individual interests. Revolts, revolutions and uprisings are nothing new in the MENA as elsewhere in the world; what is remarkable during the recent string of uprisings, however, is the lack of a central opposition figure-head, a cult-of-personality that was central to prior upheavals (e.g., recall the central role of Khomeini in Iranian Revolution of 1979). Thus, there seems to be a common understanding and unspoken faith in people's capability to self-organize and govern themselves by putting their trust in a process that draws upon the collective wisdom rather than a person.

This "common understanding" seems to be the invisible hand that guides the entrepreneurial community as well. Startups are for the most part self-organizing, non-hierarchical entities, with a particular disdain for traditional corporate structures and detailed processes. Chaotic, agile, lean and spontaneous processes are respected as conducive to innovation and progress, whereas hierarchical, authority-based processes (characterized by lots of higher-level approval requirements) are frowned upon (if not, laughed at). Each startup is an exercise in democracy, and coincidentally enough, much of the products these startups create aim at further facilitating mass collaboration and contribution by drawing upon the potential of the crowds. Facebook, Twitter, YouTube and scores of other social networking tools demonstrate how each individual is not only a consumer of important content, but also a producer with the potential to move and mobilize masses. As a result, today less and less personalities dominate our consumption of news, entertainment, or educational material than any other time in history. Technology entrepreneurs have tapped into the intrinsic value of the contributory potential of an individual in a way few governments have ever ever been able to do.

3) Disdain for Centralization

Autocratic regimes tend to be heavily centralized for obvious reasons: The dictatorial head of the state needs to maximize his control in order to minimize the risk of a coup or transparency into his personal gains. Thus, centralized government control over all societal institutions, including economy, media and communications are necessary to the survival of a dictatorship (e.g., there is no "freedom of speech" in any of the dictatorial regimes, and most uprisings are met with a shutdown of mass communications infrastructure as it was done in Algeria and Egypt recently). Because of this, centralized structures are all but synonymous with the threat of oppression and dictatorship. Not surprisingly, demands for a decentralized government has been high on the revolutionary agenda in the MENA.

Decentralization has also been a core value in the tech community. Entrepreneurial ventures are mostly decentralized organizations, where smaller teams work on projects with minimal central control as mentioned above. The Internet itself is based on a framework for decentralized distribution of packets of data (although the decentralization work is still far from over, as evidenced by the need for solutions such as the one advocated by OpenMesh Project), and many popular applications take advantage of the efficiency gains and network effects inherent in a distributed network (e.g., Skype, BitTorrent)). The general disdain for centralized approaches and normative preference for decentralized, distributed and unregulated processes is quite palpable across the entrepreneurial communities (see also, the debate over network neutrality).

Although thousands of miles apart, our entrepreneurial community shares its set of core values with the freedom fighters in MENA. This does not only explain why these events feel so instinctively important to us, but also serves as a reminder that we should do our share to further spread the word about their struggle as an act of solidarity.

Moral Evolution

2011-02-28T11:28:00.000-08:00

Working on an article that better explains this evolution, and its connection with the uprisings in MENA. Please share your thoughts on the diagram!

Startup Lessons Learned While Running A Marathon

2011-01-25T23:33:00.000-08:00

I recently started training for the marathon (alright, half marathon, but for someone as unathletic as I, it is practically the same thing anyway) in honor of my late father who had been fighting cancer for 18 months. This has been a life-changing experience for me on so many levels. Among many things, it has helped me understand the fundamentals of entrepreneurship a lot better.

So, without further ado, here are my

Top 5 Startup Lessons Learned While Running A Marathon:

1. Don't bother if you don't have a Cause (yes, with a capital "C").
What gets me up hitting the pavement and running mile after mile in rainy, cold winter morning weather is not the promise of a large payoff or some other material gain. I am doing this marathon in honor of my father and in an effort to raise funds to help find a cure for cancer. Remembering our family's struggle and hearing the stories of others during my training has been a supernatural motivating force.

2. It is all in the... PACE!
It is amazing how our instincts are not tuned for endurance sports... Somehow evolution didn't take into account tens of miles of running or founding a startup! So many people seriously injure themselves during their practice runs (or even at the goal event) because they simply run too fast, especially in the first half of the run. You need to start slow and build up gradually. You are in it for the long haul, so you need to save up as much energy as you can throughout the process. The end is typically farther than the eye can see and there are hills in between.

3. Ignore others.
This is really a continuation of #2 above. I have had to force myself to fight a lot of competitive urges in order to maintain a healthy pace. As soon as you get wrapped up in what others do, you lose sight of your own pace.

4. Work through the pains.
I have yet to do a decently long run (6 miles or more) that did not involve some kind of pain/cramp/pinch somewhere in my body. And what has worked best for me in those situations is to slow down slightly, focus on my form, and breathe into the pain (a yoga-esque technique).

5. Focus on your form, not the distance.
To battle the toughest parts of the course, such as a steep hill, or the last mile, etc., what works best for me is to focus on my form (shoulder position, back, tummy, hips, foot placement) and keep looking slightly ahead. On the other hand, trying to look at mile markers or top of the hill is usually a recipe for disaster and great way to lose motivation.

Somehow I wish I had gone through a marathon before my first startup!

A Rare Find

2010-12-31T08:11:00.000-08:00

The old adage that inspiration can be found anywhere is quite true. A bottle of wine, a gift from our good friends Fred & Mariam, provided a great reminder of that wisdom this week. Now, finding inspiration in wine dates back to Antiquity and is nothing new, but finding such inspiration literally on the bottle itself is a whole different story. This is what we found:

The wine was out-of-this-world good (a cuvee called "The Offering", 2008, produced by Sans Liege Wines from Santa Barbara, California -- and not surprisingly, Sold Out at this point). But what took our breath away was the philosophy of the wine maker, Curt Schalchlin, printed in unassuming font besides the label:

"I am free to make the wine of my choosing because I follow no one. Traveling light, all I need is carried inside: a pure heart, a clear mind, and an old soul. Though the sky is dark and the way is lost, with each footstep there is insight; with each breath, resolve."

-Curt Schalchlin

We would have missed these wonderful insights and inspiring words if my wife had not taken the time to carefully examine the bottle. Inspiration is all around us, as long as we take the time to look.

Wishing Curt and all of you continued inspiration, insight, resolve, clarity of mind and purity of heart in the year to come.

Happy 2011!

Zen and the Art of the Start

2010-11-22T07:29:00.000-08:00

Although I am at a loss when it comes to giving a prescription for how to become a successful entrepreneur, I can give it a description based on my observations of a few of my personal heroes: And it is that all successful entrepreneurs seem to be quite Zen!
The way I understand it, the mastery of Zen comes from an acceptance of the way things are, and embracing all contradictions inherent in our human condition, thereby becoming a catalyst of what has always meant to be. A Zen artist enables the manifestation of joy, happiness and beauty in the world. A Zen warrior fights the just cause in many instances without engaging in a single battle. And a Zen entrepreneur succeeds in changing the world without forcing any changes upon it. It is being a walking contradiction that makes sense: actively forcing your mind to be passive, so that life experiences are not tainted by the prejudices, fears and judgments of the mind. It is setting your ego aside, so that something much much bigger can inspire and drive your actions.

As an entrepreneur, you are constantly struggling with sanity and insanity, creation and destruction, calm and anger, fast and slow, among many other things. But unlike the acrobat or tightrope walker who tries to achieve a balancing act by using opposing forces to neutralize each other, great entrepreneurs embrace the extremes and create a union from these seemingly un-unitable forces that is a much stronger creative force than any extremist could achieve. Thus, the successful entrepreneurs seem to have a mastery of how the flow of life comes from a union of Yin and Yang, which is the essence of Zen.

How to Avoid VC Nightmares

2010-10-31T21:44:00.000-07:00

Apropos for Halloween night, I like to dedicate this post to some of the investor horror stories that circulate around the entrepreneurial community in Silicon Valley in hushed whispers. Without naming names, I have been privy to the gory details of a few such stories (Oh, the Horror!), which typically fall into 3 categories:

(A) Our VC forced us to sell too early and we left all of the upside on the table
(B) Our VC stopped us from selling when we should have, and now I have nothing to show for it
(C) Our VC drove me out of my company/business at the worst possible time, leading to its eventual demise

Needless to say, this is not an exhaustive list and textbooks, in multiple volumes, can be dedicated to collecting all the various gripes entrepreneurs have against their investors. Typically, in my experience, the complaints are leveled against professional venture capitalists (VCs) rather than the angel investor individuals or groups, although the emergence of institutional Super Angels may change things in the future. And so, I will continue the rest of this post by focusing on VCs and how you may avoid becoming another cautionary tale in your dealings with them.

Is the "Horror" real?

In my last post, I described how bad investors can kill your company. That horror is definitely real. Anecdotally, the depth and magnitude of grievances against VCs can only compete with one other group of professionals: LAWYERS! With the exception that there aren't as many VC jokes out in circulation because many of us still hope to raise some money from the VCs and don't want those jokes to be digitally traced back to us. (Although, as a former lawyer and VC, I do find the negativity with both professions to be somewhat... hyped).

And then sometimes the entrepreneurs are so deeply hurt (physically, psychologically and/or financially) that they throw caution to the wind and decide to drop a nuclear bomb on their bridge to the VC riches by going after them in the court of law (see, e.g., Epinions founders suing Benchmark and August Capital) or in the court of public opinion (see, e.g., ArsDigita co-founders' revelations). There is even a growing Quora thread on this topic.

In summary, this is spooky stuff indeed!

Antidote: Investor due diligence

Although it is hard to have any real guarantees, should you find yourself in need of VC money, doing your homework on your investors can lessen your risk and improve your chances of picking the right investors.

First thing to remember is that not all VC's are created equal. There are worlds of difference between VC firms and even between partners in the same firm. So, start your preliminary diligence well before you even send out your Executive Summary. And make sure to really dig in before you go too far down the path of negotiating a term sheet, as it becomes exponentially harder (if not impossible due to cognitive dissonance) to switch investors once you have a signed term sheet in place.

Things to investigate during diligence

Although it seems like a daunting task that would necessitate hiring an elite PI agency with former CIA/IRS credentials, most of the important stuff you would be looking for is already out there for you to see.

Reference Checks. Talk to former founders/executives that the VC firm (and more importantly, the partner on your deal) has invested in. Make sure to talk to companies where things did not go super smoothly (names of which you will most likely have to dig out on your own). Try to get a feel for how it is to work with this firm/partner during good times and hard times. Their behavior during hard times is especially important as I had mentioned before.

Portoflio Size and Composition. You need know how many other portfolio companies does the VC firm/partner care about, and whether they actually have the bandwidth to do the things you expect them to do. Also, you need to get a feel whether you fall within the sweet spot of the kind of companies this firm does well with, or you are one of the outliers. Then check against your gut to see how you feel about that. Also, note that typically larger firms with larger porfolio sizes tend to push their investments towards higher exit multiples rather than allow for earlier liquidity.

Porfolio Integrity. This is something that is often ignored. Does this firm have a history of investing in competitive companies in the same field? Some VCs actually do that. You need to know the truth, because as a portfolio company, you cannot stop your VCs from investing in your competitor if they chose to do so.

Number/Amount of Investments. Find out, over the lifetime of the current fund, how many investments the firm/partner is expected to make, and how far they are currently from meeting that quota and deploying the cash invested in them. This matters, because it will determine the amount of attention and care your startup is likely to get over the next few years. Also, if the firm is towards the end of the lifetime on their fund they will be more likely to look for faster liquidity events and will be very distracted during their upcoming fundraising cycle.

Available Funds. You need to have a realistic picture as to how much more cash this investor is likely to deploy into your company, which is a function of how much on average they spend on each portfolio company and whether they have enough cash left in the fund to satisfy that obligation given existing and projected investments.

History of Lawsuits/Disputes. You need to know whether the firm/partner on your deal is or has been involved in lawsuits. Again, those lawsuits can tell you a lot about skeletons in the closet, as well as the distractions that will likely take the attention of the firm away from you.

Risk Profile. Another thing to get a sense for is whether this firm/partner has the wherewithal to take some serious risks and take a market position (the way such firms like Kleiner Perkins or Sequoia Capital do), or whether they like to play it safe and will abandon you/your vision after hitting a rough patch.

Most of the above information is readily obtainable. It does take some investment of time, but can you afford not to spend the time on them?

Happy Halloween!

Caution: Bad investors kill good companies

2010-10-24T22:38:00.000-07:00

Around Silicon Valley, we all believe that having a good idea is not enough, and it is rather the execution that counts. And myths abound about how savvy investors like Sequoia or Kleiner Perkins can make a difference between a blockbuster success and a lackluster startup. I accept all of that. However, what has been left out of the conversation is an examination of the impact that bad investors have on promising startups. Sadly, few entrepreneurs pay much attention to this issue at the time of fundraising. It is time for some healthy debate on this topic, and here is my first stab at it:

What is a "bad investor"?

Some entrepreneurs assume that the worst that an investor could possibly do is not to add value. That is not true! As I will explain below, a bad investor (like a bad friend) can totally distract, demoralize, and completely ruin the future of your company. More specifically, a bad investor is one without whom your startup would have actually had a better chance of succeeding.

How to spot a "bad investor"?

Typically, bad investors are those that are disengaged from the startup and the Board when the times are good, but become quite concerned and agitated as soon as the company hits a rough spot (e.g., a key employee departure, a drop in key metrics, appearance of a lawsuit, etc).

What is so "bad" about a bad investor?

The main problem with the behavior described above is that it sabotages your success by putting stress on you when you can least afford it. Here is why:

Every startup goes through ups and downs; it is just a part of the creative process of innovation, as we all know. And "creative" is the operative word here. In a startup, you try things, some work, most fail, and you try to learn and repeat the process with better results next time using as much creativity as you can manage. These creative iterations are to a large part dependent on outside-of-the-box thinking. This is especially true when you need to do some major pivoting work around your business model / customer acquisition strategy / etc. That means you will need to take some major risks. However, whenever you focus on risks, fear enters the picture and your brain literally shuts down its creative parts and goes into defensive/survival mode, which means you become physiologically incapable of finding the creative solutions to your problems. Most of us have first-hand experience of this phenomenon, which is also supported by a growing body of psychology experiments (see, e.g., feeling good increases possibility of insights).

So, here you are, on the verge of losing everything (your reputation, the trust of friends and family who believed in you and perhaps even invested their savings into your company, your employee's livelihood, and the list goes on and on) while trying to keep calm and not panic. And as a savvy entrepreneur, you may be able to push back the internal fears and stress to come up with some creative solutions and insights. But it becomes an order of magnitude harder to do so when you have, at the same time, one or more investors breathing down your neck, distracting, harassing, and perhaps even threatening you and other investors, second-guessing every move and chewing up your remaining brain cycles. It becomes pretty much impossible to be creative under those circumstances, which unfortunately spells disaster for your company, as you will be unable to find a solution to your predicament, no matter how trivial the solution may seem post mortem.

Lots of great companies were second ideas that rose from the ashes of their predecessors. And more likely than not, the investors in those companies were understanding and supportive during the tough times, expressing something like "Hey, I know you guys have been working really hard and it is okay if the startup doesn't make it. We knew the risks when we invested and were honored to have been a part of this journey with you." And that is the kind of investor you want to have!

Entrepreneurial angst in “Losing My Religion”

2010-10-10T16:23:00.000-07:00

Gabriel Garcia Marquez, “A Very Old Man With Enormous Wings” via Inspiration Room

As an entrepreneur, most of the time you are either confronted with a Sophie’s Choice or if you are lucky, just a Faustian bargain… Except that, whereas our “lucky” Dr. Faustus had the good fortune of dealing with just one demon (Mephistopheles), as an entrepreneur you are haunted by many evil forces, which may be cloaked in the guise of equity investments, outdated regulations, frivolous lawsuits, bad hiring decisions, competitors, etc…

So, it is no surprise that yesterday, as I was listening to the lyrics of Losing My Religion (the classic obsession song by REM, which only one other song can top in capturing the essence of Obsession: Every Breath You Take by The Police, of course), it instantly resonated with the entrepreneurial side of my brain.

Here is a sneak peek into that side of my brain. The opening lyrics set the mood perfectly:

Life is bigger
It's bigger than you
And you are not me
The lengths that I will go to
The distance in your eyes
Oh no I've said too much
I set it up

Background: As an entrepreneur, you pour your heart and soul into an idea. And I am not talking about any old, fly-by-night idea. I am talking about that idea which you decide to make the Idea and build the Startup around it. Before you know it, that Startup becomes part of your identity. The boundaries between your life and the Startup get completely blurred. Even at night, your dreams mirror your daily reality, and just like the poor souls in Inception, you start losing your grip on what is real and what is a dream!

The Struggle for Perspective: At some point between the 18^th and 24^th month of the Startup (not sooner, because you don’t have the luxury to be philosophical about anything during the first 18 months), you realize that it is not healthy to lose your self in an idea, in something that has no guarantee of success or permanence. You realize you are drowning in some invisible quagmire, and the success that you have been striving for may be the very thing you should be running away from. You start fearing that you may never find yourself, your old values and your relationships again if you continue down this path. So you try to put a distance between you (your old self) and the Startup (which has become your new self). And you anchor this existential struggle by referring to “life” as something “bigger” that can provide a perspective from where the distinction between “you” and the Startup can become more clear. ‘Life’s got to be bigger than this Startup,’ you keep reassuring yourself, and ‘I am not the Startup either’ (and hopefully, through some strange transitive logic, you hope you are bigger than the Startup as well...).

Founder Guilt Syndrome: But here is the rub. As you try to put some distance between yourself and the Startup, you cannot help but feel extremely guilty because it was you that “set it up” and created all this mess anyway. And you fear that by putting down your Startup, you may have doomed your beloved idea to eternal failure: If the Founder (or Creator, as you will) stops believing, who will believe and make this a success against all the inherent odds? So, you wonder, are you being smart or just simply sabotaging yourself? Or as the song laments, have you “said too much”?

Self Doubt: As an entrepreneur, you try to stay strong and confident. But there are also those moments that you project into the future and imagine what success would feel and look like, yet all you see is fear and self doubt. The following lyrics do a fantastic job of capturing those thought fragments (by the way, the phrase “losing my religion” is apparently a southern way of saying I am ‘at my wit’s end’ or ‘going crazy’)

That's me in the corner
That's me in the spotlight
Losing my religion
Trying to keep up with you
And I don't know if I can do it
…

Oh, the Torture: Entrepreneurs are tortured souls (lawyers have nothing on us; I know, because I have been both!). Again, the song captures that sentiment quite masterfully as well:

Every whisper
Of every waking hour I'm
Choosing my confessions
Trying to keep an eye on you
Like a hurt lost and blinded fool
…

The slip that brought me
To my knees failed
What if all these fantasies
Come flailing around
….

At this point, it feels like I am saying too much as well. Please enjoy the music video to the song from 1991 (time flies) and do share your thoughts on how it relates to your entrepreneurial journey!

Coupons are dead; long live the coupons!

2010-10-01T21:34:00.000-07:00

My main takeaway from spending the better half of last week at SF TechCrunch Disrupt conference (an event some may call “Silicon Valley’s Academy Awards”) is as follows: 2010 will go down in history as the year a swarm of startups finally managed to kill traditional coupons.

The “traditional” coupon industry is doomed to die a slow death-by-a-thousand-cuts, inflicted by a gaggle of mobile check-in startups taking advantage of the newly-found access to users’ locations. As each location-based startup came onstage at Disrupt, I could almost hear the Julius Caesars of today’s coupon empire yell out in anguished unison, “Et tu, Brute?”

Of course, the fundamental economics behind coupons (i.e., the concept of using price discrimination to distinguish customers by their reserve price and thereby generating the maximum sales/revenues/profits), has not changed. As a matter of fact, location-based startups are following the same economic principles by hoping to provide an efficient delivery mechanism for providing the ideal discriminatory pricing scheme; a task that is no less ambitious than Pierre Omidyar’s vision for eBay to materialize a “perfect market” (the theoretical economic concept where there is perfect access to information and zero transaction costs).

Providing location-based coupons is not an entirely new idea. People have been handing out coupons and promotional material on the sidewalks at most metropolitan areas for ages.

And the concept of virtual coupons is not entirely new either. I recall reviewing business plans at the start of the decade of a number of startups who wanted to send people coupons via SMS based on their location. And, just as I felt ten years ago when reviewing those business plans, I remain highly skeptical whether the new check-in Apps that tap into your social graph and GPS location data can actually overcome the negative emotions associated with someone disturbing your stream of activity by putting a “deal” in front of you (sort of like the feeling you get when as you walk down the street someone suddenly hands you a flyer).

There is a fine line between annoyance and value. I get annoyed when I am distracted, but I love it when someone anticipates what I need and puts it in front of me (something Google tends to do very well with their search advertising). Whoever manages to get closer to the latter of the two will likely be quite successful. I, however, have not found such a service yet, and find all of the current location-based check-in Apps to be either useless or extremely invasive. In fact, the only "price discrimination" these Apps currently provide is to generously give discounts to folks who need them the least, as the iPhone/Android/smart phone demographic is among the least price sensitive demographic you can find!

Entrepreneurial Paradise Lost?

2010-09-20T00:10:00.000-07:00

The recent flurry of seed activity and the rise of Super Angels has lately inspired great deal of debate and even pure entertainment in the tech community and beyond (just watch the installments of Super Angel / VC SMACKDOWN on TechCrunch!).

The Super Angel / VC debate fundamentally touches the core of what today's Silicon Valley culture is starting to define as successful tech entrepreneurship: One camp (occupied mostly by traditional VCs) believes that successful entrepreneurs are those who aspire to, and succeed in, building B.I.G. (aka Google-size or at least Facebook- or Twitter-size), industry-changing, behavior-defining, money-making behemoths, whereas the Super Angel camp believes that successful entrepreneurs are not in it for the money, but for the love of the game, and therefore should rationally desire to build moderately successful ventures that can be flipped at a $50M exit or thereabouts, so that founders can make their F.U. money, as Dave McClure eloquently puts it.

In other words, the VCs tend to place the normative weight of entrepreneurship on the size of the total outcome, whereas Super Angels tend to place it on rational risk optimization for size of the proverbial "founders' pie".

But as an entrepreneur, neither of those measures of "success" sits well with me; in fact, they seem to fundamentally miss everything that I stand for, and in the process somehow even insult me!

For starters, we all know plenty of successful entrepreneurs who have not set out, nor been successful at, building billion-dollar companies. We also know plenty of successful entrepreneurs whose essence is defined by defying the odds, rather than making the safe bets. I know plenty of successful entrepreneurs for whom any kind of financial calculus is at best secondary to their primary motivation, if not a total buzz kill (will discuss in a later post).

Instead, the primary motivation that all great entrepreneurs seem to have in common and which uniquely sets them apart from others seems to be their will to overcome.

The desire for financial independence (aka, McClure's F.U. money) and the desire to topple monopolies and change the world (something that the good VCs tend to pick up on), are only two different manifestations of that "will to overcome". Other manifestations can be seen in ways that people approach hardships for themselves and for fellow human beings, and in lessons learned from past experiences. But such manifestations cannot simply be assumed to be the proxy for the real thing!

So therein lies my uneasiness with the Super Angel / VC debate:

Being a big dreamer or a risk optimizer does not necessarily mean that you are an entrepreneur, as you may very well still be lacking that entrepreneurial will to overcome!

And therefore, an investment philosophy that puts any significant weight on those factors would be optimizing for the wrong variable and is statistically doomed to fail.

But there is even a greater danger: The ethos of the American Dream are fundamentally at risk here: The American Dream (at least the way I understand it), is not about some materialistic outcome, but rather about the life journey and the attitude one takes along this journey. Do you want to be your own boss? Do you want to have control over your own destiny? Do you want to change other people's lives?... Or simply put, do you want to overcome existing limitations? If your answer is yes, then I think you can safely be considered an entrepreneur. And the strength of your will to overcome will have a direct relationship to how successful you will become (at least, so I believe).

Apologia!

2010-09-19T22:07:00.000-07:00

I know, I know, I know... I have been a very bad blogger... It has been over 3 months since my last post, and I gave no forewarning about this absence, nor offered any interim details. And as we all know, these are all indeed very big blogging sins!

I know excuses are a dime a dozen, but in my Apologia suffice it to say that a combination of personal and professional obligations made it extremely hard to even find 5 minutes of free time to write something down without feeling extremely guilty about neglecting one of the two aforementioned obligations. So blogging was competing in time with other daily necessities, like sleep, shower, gym (and my Doctor gave me an earful about the last one on Friday).

So, I am hoping now to get back on track with resuming my semi-routine of posting at least something substantive per month.

So, thank you for reading and your understanding :)

Touraj

Entrepreneurship Lessons from Seinfeld

2010-06-13T20:52:00.000-07:00

I have always been a great fan of Cosmo Kramer in Seinfeld, and now I know why. But before I get into that, I would like to start this post by repeating a question that is on our collective minds these days:

WHY ON EARTH HASN'T ANYONE BEEN ABLE TO 'PLUG THE DAMN HOLE' YET AND AVERT ONE OF THE WORST ECOLOGICAL DISASTERS OF OUR TIME?

Has no one ever really thought about a solution to this kind of problem? Not even someone at BP? It is hard to believe that this is such a mystery, especially when you compare this problem to so many other, much more complex obstacles that mankind has been able to overcome with flying colors (say, putting a functioning robot on Mars as an example!), not to mention the fact that even celebrities (e.g., James Cameron) seem to have their version of the solution to this problem these days. And when you put all that together with the fact that BP has almost infinite resources as the fourth largest company in the world (prior to this accident), things don't quite add up...

Anyhow, this Gulf oil spill crisis reminds me of one of my main takeaways from my experience in the venture capital world: That there is a BIG difference between an inventor and an entrepreneur, and that the valley between innovation and entrepreneurship is filled with the rotting corpses of innumerable great ideas that never see the light of the day.

I am convinced that the proverbial "mad scientist" dwells in the minds of each and every one of us, and although our innovative scientist comes up with great solutions to everyday problems as we encounter them, most of us rarely ever do anything about them. And the same exact phenomenon happens all over the world in academia, corporations, startups, governments, oil companies... you name it! People constantly come up with great ideas, and those ideas are soon shelved (or less affably, tossed) in the circular file.

Given this overabundance of brilliant ideas, the question really becomes Why aren't these solutions put into practice, productized, or mass marketed? Just like the Gulf oil spill, there are so many "unsolved" problems out there, and the solutions aren't there not because no one has figured out the solution in their head/lab/company/department, but because no one has so far effectively executed on the solution. It is one thing to innovate and to find the answer to a problem, but it is a completely different thing to breathe life into that innovation and to bring it to the market, which is the essence of what we call "entrepreneurship".

In that sense, Seinfeld's Kramer was a true entrepreneur despite his crazy ideas (remember, he actually made his Coffee Table Coffee Book and it eventually became a movie!), whereas the main character, Jerry Seinfeld, was at best a mere innovator, with tons of opinions and brilliant insights into everyday problems, but never really doing much of anything about any thing (but I suppose we can forgive him, as he was just a comedian after all).

The Gulf oil spill tragedy, and many other everyday tragedies resulting from unsolved questions, is symptomatic of the fact that as a society we have put so much more emphasis on innovation to the detriment of entrepreneurship (see, even the show was called "Seinfeld" and not "Kramer", as I would have liked it!). There is constant talk of promoting R&D, or a "culture of innovation" at all levels of government and corporations worldwide, but FAR LESS resources, time and money is spent on promoting a "culture of entrepreneurship": For example, a simple google search for "culture of entrepreneurship" returns barely 200,000 results, whereas "culture of innovation" returns over 1.5 million results; Or consider the fact that we have volumes of laws that protect innovators' rights (aka Patents), but can you point me to any law that tries to protect entrepreneurs? And some laws that even try to come close to promoting entrepreneurship (e.g., Startup Visa) face fierce opposition in legislative bodies for some unknown reason; and the list goes on...

I think it is about time that as a society we start giving entrepreneurship its due, if we really care to have effective solutions to our problems. What do you think?

Ning's Problems Totally Unrelated to Freemium Model

2010-04-16T21:30:00.000-07:00

By now, everyone has heard of Ning's internal announcement yesterday that they have decided to focus on paying members and discontinue their free offering. (See Ning's CEO post on Ning's Blog for the official announcement today).

Some may see this as a move spurned by investor pressure for monetization after pumping $120 million into the company at astronomic valuations, others see this as a vote against the advertising model, and some have even gone as far as questioning the viability of the freemium model.

What I like to point out is that Ning's problems are totally unrelated to the viability of the freemium model for startups. As a matter of fact, I think the problem with Ning is not a reflection on the viability of the Freemium Model, but rather the dangers of raising too much money, too quickly (a problem that is not commonly shared by many startups, fortunately!)

As previously mentioned in my last post, in a freemium business the entire organization needs to focus on the fundamental metrics of the business, and then do rapid iteration to improve those things such as conversion rates, which may not seem as important if you are sitting on $100 million war chest. Freemium is an exercise in cold, hard, mind-numbing analytics. Not as glorious as throwing Hollywood parties and meeting with celebrities, but nonetheless essential to success.

There are many examples of startups that have successfully figured out the freemium model, but I like to mention my company Webs as the closest example to Ning:

At Webs, with a small team of 40 and having raised only $12M in venture capital, we have been able to create a social website creation tool that became cash flow positive and has been quietly used to build and host over 50 million websites (yes, that was not a typo, FIFTY MILLION!). In fact, before raising venture capital, we grew the company profitably to 6 million users by bootstrapping it with only $2,000.

Do those numbers sound surprising to you? Well, that's because we used our limited cash and resources to focus on the fundamentals of the business rather than PR and marketing. Happy to report that the freemium model is alive and well!

The Freemium Manifesto - Insights from the Freemium Summit

2010-03-28T00:14:00.000-07:00

The full-day Freemium Summit in San Francisco on Friday managed to exceed the expectations of mine (and everyone else I talked to), thanks to a stellar set of speakers and panelists (special kudos to organizer Charles Hudson).

If you search for #freemiumsummit on Twitter you will get a taste of the firehose of stats and insights shared, and there have already been a couple of blog posts about the event (here and here). Having been an advocate of the freemium model for the past 5 years (evangelizing freemium mobile calling at jaxtr and now freemium website building and hosting at Webs), I left The Summit with a stronger sense of purpose and deeper conviction in the following set of ideas -- my "Freemium Manifesto":

Freemium is as virtual as the Web
Freemium business models work only when your marginal cost of delivering the service to a new user approaches zero. In traditional goods and services industries, such utopia cannot exist as delivering any physical good or service has real costs associated with it. This is not so in the virtual world as processing, bandwidth and storage costs approach zero. The best you can get in the non-virtual world is "free trial" or "first-one-is-free" type of offers, but those are really marketing tactics and not fundamental attributes of the product or the business model. That is why online businesses that got started in early days of the Web opted for the "free trial" model as they faced steep storage and bandwidth costs (e.g., legacy web hosting companies).

Freemium is a product concept, not a marketing problem
Unless you build the DNA of your product around Freemium, it will never work. That's why approaching it as a "marketing" problem would be disastrous. Freemium needs to be built into the Product, and every feature developed, the user experience, flows, funnels, upsell paths, etc., all need to be evaluated in its light.

Freemium is a disruptive business model
Products and services that are not built on the freemium model have a very hard time changing and adopting to the freemium model. Just as the case of disruptive technologies, established non-freemium businesses have a serious heartburn over cannibalizing existing revenue lines by giving away things for free. Entire departments would have to be laid off and/or retrained, and the business would have to take some time off to learn the new tricks of a new way of doing business. In other words, lots of time, money and ego has been invested in building the existing business model and its projections, which means real inertia. So, few Boards would seriously advocate such change to the way things have been done. Which leaves ample elbow room for startups to come and take away market share. This is what Skype is doing to the Telco industry, Zoosk to the Online Dating industry, and my company Webs to the Website Building and Hosting industry.

Freemium is the future
Although all of the panelists and speakers at The Summit kept emphasizing that freemium may not be right for everybody, I believe that for online businesses, freemium is the future. As the costs for delivering virtual goods and services drop, it is just a matter of time before someone in your particular industry starts figuring out how to give away something for free online, FOREVER, while building a successful business on top of it. If freemium is not part of your business model, now is the time to challenge yourself!

Do you agree or disagree? Please share your thoughts in the comments below.

It's OKAY to "pull a Patzer", if you have founder-friendly VCs

2010-02-28T14:31:00.000-08:00

There was an insightful guest post on TechCrunch today about some sobering lessons learned by Tod Sacerdoti, CEO of BrightRoll (a video advertising network), while raising his recent Series B round from Sand Hill Road. To his surprise, Tod found many VCs were worried that he would "pull a Patzer" and wanted to get comfort that he wouldn't commit such sin. This is how he puts it:

By most accounts Mint.com’s rapid rise to prominence and ultimate acquisition is the quintessential Silicon Valley success story. Yet, the Mint.com acquisition brought to light an interesting phenomenon, one I’ve coined the “Patzer Problem.” Prior to submitting offers to invest, three separate VCs wanted to confirm that we had no intention of “Pulling a Patzer,” modern-day Sandhill Road parlance for selling too early.

Here’s why: with large funds being raised on Sand Hill Road and returns from previous funds underperforming, investors are becoming increasingly desperate for that single homerun investment that returns $1B or greater. Even though Mint.com was a huge success for the founder and team, generating $60 million in equity value per year, many VCs believe they sold too early and left too much potential value on the table.

I believe the "Patzer Problem" has always existed in the VC community and is not specific to our current, dismal economy - although of course the terminology is a Post-Mint pheonomenon. This is an inherent problem of BIG VC FUNDS who are more or less HIGHLY LEVERAGED PORTFOLIO MANAGERS, rather than company builders. I have even heard the less charitable term "Spray and Pray" applied to many such big funds in the past (but I won't name names).

If a VC fund makes 10 or more investments per partner, and the expectation of each partner is that only 10% of his or her investments will truly "make it", then of course unless the return on investment for any one portfolio company is pegged at over 10x, the fund could not return its capital commitments. However, all VCs are not created equal, and for every BIG FUND, there are plenty of smaller, founder-friendlier funds who invest in a much smaller number of portfolio companies and therefore, are happy with smaller returns.

In fact, as a rule of thumb:

# investments / partner = Expected breakeven multiple for the fund / investment

That is, the lower the ratio of investments per partner, the lower the multiple you will need to hit before you can get the wholehearted, enthusiastic nod to an acquisition from that VC firm. And such firms typically tend to be more "founder friendly" as they allow the founders/executive team to be in the driver's seat when it comes to the acquisition decision, and also have a lot more bandwidth to help the founders build great companies, something that the big funds are not particularly positioned to do.

P.S. The above formula is a "rule of thumb" and not an absolute statement. It just shifts the burden of proof unto the VC to give comfort to the entrepreneur as to how they would help the entrepreneur achieve his or her dreams.

Ambition: An Entrepreneur's Dilemma

2010-01-24T22:03:00.000-08:00

So here is a classic dilemma. We all know that true entrepreneurs, by definition, are an ambitious bunch. And proudly so. But this "pride" sometimes turns into "hubris", which if unchecked, unfortunately leads to the demise of a company in a not-so-glorious downward spiral. This hubris is the founders' over-estimation of their own and their company's competencies by a far margin.

In many instances, hubris is not easy to detect, as it disguises itself beneath a veil of confidence. But there is one place hubris cannot hide, and that is in the company's monetization strategy (aka Business Plan).

You are suffering from a serious case of hubris if you believe:

(1) Your startup with less than 20 people can have multiple revenue streams, such as advertising and subscription revenue. When you rely on multiple competing revenue streams, that means you don't appreciate the complexity involved in making correct optimization choices when optimizing one stream will inevitably adversely impact the other, and the divisive ripple effects this would have inside your organization.

(2) You can have better conversion rates than your competition within the first 2 years of launch. Having better conversion rates is a matter of time and analytic disciplines. There is no magic formula. If your competition started 2 years before you, it is so much harder to keep up with them because they have lots more data in their analytic arsenal. And unless they sit around and do nothing, you will always be playing catch up as far as data is concerned. And at the end of the day, data is everything (read next point for the "why")!

(3) You don't think you need a dedicated analytics person/team for your Internet startup. Building an Internet application is all about delighting the users in a way that generates revenue better than your competition. And no one knows how to do that a priori. You need tons of empirical data and perform A/B tests to arrive at the solution, and then do more tests to keep up with the changing times. Hence, the need for superstar analytics talent on your team from very early on.

Do you agree? If you have encountered other tell-tale signs of hubris, please do share with us in the comments.

Is there a Silicon Valley advantage?

2009-12-20T00:11:00.000-08:00

One of the advantages of being in the "job market" is the opportunity to gain some distance and reflect on some fundamental assumptions we take for granted. One such assumption for me was that "You have to start an Internet startup in Silicon Valley!" I have now come to realize that this assumption not only is false, but can be quite an impediment to success in building and growing your company. Here are some data points that have helped me reach this conclusion:

1. There are plenty of very impressive, financially successful Internet startups that are headquartered outside of Silicon Valley, even outside of the US. Examples abound, but some companies off the top of my head are Whitepages.com (Seattle, WA), Club Penguin (Vencouver, Canada), Metro Lyrics (Vancouver, Canada), Cymax (Vancouver, Canada), and Webs.com (Silver Spring, MD). You may not have heard of some of these companies, but that may say more about the media coverage bias rather than actual financial success or user adoption.

2. Many successful Bay Area startups are recruiting heavily from outside of the Bay Area rather than locally, and have found the candidates from outside of the Bay Area to be as technically competent, with very strong work ethics coupled with a dose of humility to boot. As an example, social dating site Zoosk, which recently closed on a $30 million financing round, has recruited most of their employees from outside of the Bay Area.

3. Many Silicon Valley venture capitalists are looking outside of the Bay Area for investment opportunities. The math is as follows:

Lower valuations + lower labor/infrastructure cost + more available resources = higher likelihood of survival and success.

4. Most of the founders of successful Bay Area startups are not "locals", but first generation "immigrants" from other parts of the US/world.

Certainly, the above does not mean that in order to succeed one should sever all ties to Silicon Valley. The ecosystem of entrepreneurship that exists in Silicon Valley does not have a close second in the world and every successful startup should have a strategy about how to plug into the Valley ecosystem. But doing so does not necessarily mean you should headquarter the company from inception in Silicon Valley.

Indeed, for some startups, the right time to establish a presence in Silicon Valley may be many years after founding the company, reaching millions of users, and obtaining that elusive positive cash flow. As a matter of fact, as of December 1, I myself have joined one such startup (Webs.com) in order to help them plug into the Silicon Valley ecosystem through partnerships and collaborations now that the company has reached the scale, user base, product and platform stability that can credibly support such efforts.

So, next time you are thinking about where to start your company, don't automatically assume it has to be in Silicon Valley.

P.S. This will likely be my last post of 2009, so I wish everyone Happy Holidays and an auspicious start to 2010!

To Succeed, Tear Down Those Walls

2009-09-05T08:24:00.000-07:00

And I mean this literally: If you want your startup to succeed in today's hyper-agile and über-competitive environment, you've got to tear down those office walls. Why?

Because in a startup environment, communication trumps privacy!

Over the past ten years, I have visited the offices of well over 100 startups in Silicon Valley, and looking back, there has been a very strong correlation between those startups sporting an "open office" layout and their ultimate success. Here are some examples:

Powerset (acquired by Microsoft as foundation of their Bing natural language search engine) started with the whole company huddling around a large conference room for the first year in CommerceNet headquarters in Palo Alto. No executive offices, no cubicles, not even individual desks.

(Which, coming to think of it, reminds me of another quite innovative, albeit a bit older startup)

Facebook Long rows of tables with monitors facing in every direction has been characteristic of Facebook offices from the humble beginnings in scattered offices throughout downtown Palo Alto, to their new digs at the former Agilent building in Palo Alto. Here is a skateboard video tour of the new office, which illustrates that they are still true believers in the open office philosophy:

Google When they outgrew the garage and moved to 165 University Avenue, Palo Alto (also known as the "lucky building", home to other notable startups such as Logitech, Paypal and Danger) with their 8 employees in 1999, they didn't have any offices. They are still trying to maintain the open office feel, although it gets a bit harder to do once you have over 20,000 employees worldwide.

(Larry and Sergey in their startup garage. Pic from http://bit.ly/JnL9x)

Of course, just having an open office layout does not guarantee you overnight success, yet without one, you are putting your company at a distinct disadvantage versus your competitors, as they will be able to innovate and move much faster than you can. In startups, every nanosecond counts. Your employees need to be in constant communication with one another, and your job as founders/executives is to eliminate any barrier and friction in that process (coincidentally, this is one main reason it is usually not a good idea to outsource/offshore development in a startup, regardless of the immediate financial benefits).

As for those employees who come to you and tell you they need a cubicle/office because it is getting too loud for them to be productive, well, you may just want to offer them a pair of noise-canceling Bose headsets before you make any rash decisions.

Mathematical explanation of entrepreneurial bug

2009-08-28T07:14:00.000-07:00

Not all things in life are quantifiable (you know, things like justice, love, or your experience of the color purple), but the proverbial "entrepreneurial bug" is not one of them.

As a corollary to a well-known math problem called the two-envelope paradox, it is perfectly rational for an individual to want to start one company after another and expect a higher reward after each iteration, even if the expected outcome associated with each of these endeavors is completely random (as I would argue is the case every time you start a new company)! To understand that mathematically, this is how the two-envelope paradox works (taken from the latest analysis of this paradox on PhysOrg.com):

In the two-envelope paradox, a player must choose between two envelopes, one of which contains twice as much money as the other. The player can open the envelope they choose, and then they have the option of switching envelopes. The other envelope, of course, has either twice the money or half the money as the first envelope, but the player does not know which.

It may seem that, since a player has a 50-50 chance of choosing either envelope, they have an equal chance of gaining or losing money whether they decide to switch or keep the original envelope. However, probability theory seems to confusingly show that it’s always better to switch.

For example, say the first envelope you pick has $10, so that the other envelope has either $20 or $5. Then you can calculate the expected value (i.e. the probability-weighted sum of the possible values) of the second envelope, assuming that each possibility has a 50% chance: (0.5 x $5) + (0.5 x $20) = $12.50. Since $12.50 is more than $10, it makes sense to switch. No matter which numbers you use, you always get an expected value for envelope two that is 5/4 higher than the value for the original envelope: if c is the value of the original envelope, the expected value of the second envelope is (0.5 x [0.5c]) + (0.5 x [2c]) = 5/4c.

This counter-intuitive mathematics can explain very well why so many first-time entrepreneurs try again, regardless of the success or failure of their first attempt. And why it is perfectly rational for investors to expect a higher payoff from a not-so-successful serial entrepreneur than a first-time entrepreneur.

Do "good guys finish last" in business?

2009-08-23T12:35:00.000-07:00

I remember a few years ago the CEO of a then-successful startup told me in confidence he couldn't afford to care about ethics in his business because "you know, good guys finish last"!

That statement was shocking because that individual on a personal level had high integrity and good moral character. But market pressures combined with the demands of the Board had somehow convinced this CEO that doing right by the shareholders demanded that he put personal morality aside and do "whatever it takes" to increase the company's bottom line and competitive positioning.

This was not an individual driven by Enron-style greed or Madoff-style excesses, but someone who was merely trying to survive; someone who was simply afraid of finishing last. Was he being a good CEO or a lazy one?

When all your competitors are getting ahead through less-ethical practices (such as buying positive reviews for their product on the App Store or other social media outlets), what do you do? Do you sit back and concede the market to your competitors or do you also join in the game and start an arms race? How do you competitively price your product when your competition uses various schemes (ahem, scams!) to hide the real price of the same product from their users to give them the appearance of a bargain (as is a common practice in the calling card industry)?

The answer to these questions depends on whether you are trying to build a long-term, sustainable business or whether you plan on making a quick buck and run for the border. Because if you plan to stay in business, in the post-twitter information society, transparency is becoming the name of the game and your reputation as a trust-worthy business one of the single most determinants of survival: Sooner or later, the non-ethical businesses are found-out and abandoned by users/customers/partners/employees (I am not going to even talk about the legal dimension of unethical business practices here, and some argue that there is really no line between illegal and unethical to begin with).

My above statement is not a hypothetical or game-theoretical proposition (although there is plenty of academic literature around the topic of reputation effect in repeat-game vs. end-game scenarios - just google it), but an empirically proven observation: For instance, in ecommerce, many studies and A/B tests have proven that perception of "trust" has a very strong correlation to the conversion rates of your website. And just as an eBay-seller would not make it far without a positive reputation score, your company or service will not make it far without an overall online reputation that is positive.

Being one of the "good guys" will not ensure your success, but without it, you are guaranteed not to succeed.

Revisiting Alchemy, Valley Style

2009-08-21T14:58:00.000-07:00

Let's be honest about this, the quintessential Silicon Valley entrepreneur is not that different from your typical alchemist dating back to the Persian Empire of 2500 years ago, as described by Wikipedia:

Alchemy (Arabic:al-kimia) (Hebrew:אלכימיה al-himia) is both a philosophy and a practice with an aim of achieving ultimate wisdom as well as immortality, involving the improvement of the alchemist as well as the making of several substances described as possessing unusual properties.

But wait, what about those less noble pursuits such as greed and let's-make-gold-out-of-cheap-metals bit?

Well, when you look at it closely, any human endeavor that can promise to get you close to "ultimate wisdom" and "immortality" (which apparently some believed to be possible through gold back in the day as the Wikipedia entry goes on to explain), inevitably becomes mixed up with financial gain and material success. And such, seems to be the lot of us Silicon Valley entrepreneurs as well.

So it is not surprising that many entrepreneurs find inspiration and motivation in Paulo Coelho's international bestseller, The Alchemist. As a matter of fact, I started my last company (jaxtr) after reading that book and finding it to be completely appropriate to quit my well-paying corporate attorney job and pursue a dream (thank you @paulocoelho).

This blog will not be about jaxtr, but about what I have learned from that experience, as well as my reflections on encounters with many other entrepreneurs, ideas and practices.