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Saturday, July 31st, 2010

3 Tips For Startup Founders From Paul Graham of Y Combinator

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TechCrunch had a good interview with Paul Graham of Y Combinator on what he looks for in an entrepreneur.

I find Paul super-bright…and he has invested in over 200 companies over the last 5 years so he’s got some data to support his ideas.

So listen up, founders (wannabe founders too)!

3 Tips for Startup Founders

1) The Founder Is More Important Than The Idea

Graham bets on the jockey, not the horse.

2) The Relationship Between The Founders Is Very Important

The relationship between founders is key. Founders are ideally friends for awhile or have worked together on things.

“What we don’t like is people who only came together for purposes of this startup.”

Reason: If the startup is all that ties them together, that gives little to hold the startup together (especially during crises).

Close friends will even keep working on a startup out of loyalty to their pal.

3) The Founding Team Should Have A Clear Leader

“It’s really bad if we’re talking to a startup and we can’t figure out who the leader is.”

Each startup should have one person who is clearly in charge, Graham says. And they should be sufficient ass-kickers.

He gives Mark Zuckerberg (Facebook) and Larry Page & Sergey Brin (Google) as examples of forceful leaders.

A good test of whether there is a clear leader among founders: If you can’t figure out who to ask a question to (of the founder team) (e.g. if they all respond as peers, then that’s bad).

“It’s good if there’s one [founder] who pushes the other [founders] out a bit…steps forward a little bit.”

Well said.

Separately, I heard Paul mention something at the CrunchUp Social Currency conference I was at last week about the ideal size of  the founding team of a startup:

  • 2 to 3 founding person team is best
  • 1-person founding team is next best
  • 4-person founding team is worst
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Friday, July 30th, 2010

What Makes A Good Startup Entrepeneur by Ron Conway & Paul Graham

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Fun panel at today’s CrunchUp with:

  • Paul Graham, YCombinator
  • Ron Conway, SV Angels
  • Michael Arrington, TechCrunch

Here are notes of my favorite nuggets:

Ron Conway on data about his 500 startup investments:

  • “The success rate in our portfolio is going from 10% to 15% right now…because of the$25 million to $50 million M&A deals.”
  • Failure Rate was 77% leading up to the Internet Bubble of 2001…and now is about 40% post bubble (2002 to today)
  • “Repeat-entrepreneurs” have about a 66% rate of success in their second startup.
  • Deal flow did not decrease during mortgage bubble.
  • Entrepreneurs have the same level of success regardless of the climate.

Check out Ron Conway data here for more on the data from his deals)

Here are some more Ron Conway thoughts:

  • “Getting your money back( (from an entrepreneur) is not a bad deal”
  • Shawn Fanning is one of the top entrepeneurs he’s worked with.
  • Mark Zuckerberg…has grown in maturity and saaviness of being a leader…”on an algorithmic scale.”
  • Great defining companies are being created at a much quicker rate than they were 10 years ago. Awesome news for entrepreneurs.
  • An ideal entrepreneur is a little bit crazy (crazy-smart) is good

Paul Graham on ideal size of a a founding startup team:

  • 2 and 3-person startups are the best
  • 1-person startup is the next best
  • 4-person startup is the worst

Michael Arrington: Facebook is offering one-tenth of a percent of equity to top of the top engineers.

Check out Ron Conway’s Three-Megatrends of The Internet to see what markets Ron Conway is interested in.

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Sunday, July 25th, 2010

A Summary of Mobile Startup Ideas From Startup Weekend

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I’m here at Startup Weekend (taking place at KickLabs’ San Francisco office) and a bunch of startups are pitching their mobile-based ideas.

Below are most of the ones that presented with a brief description of their pitch — I listed the ones that impressed me the most first (though all had massive potential!).

Metayoo — Finding new connections nearby.

A user can open up their LinkedIn, Facebook and Twitter profiles to people 300 meters around them so that users can make new connections.

Users can also have a tag line saying, for example, that they’re “interested in a job.”

I believe founders Kevin & Megan have enormous potential.

Business Model: Job recruiters pay to list positions.

Flought (This was the judges’ choice for winner) — Letting people broadcast thoughts anonymously

Premise is that people have 50,000 thoughts per person per day.

Flought application: People use their phones to type in 70 character messages that only people within a 70-foot area can see.

Business Model: Unclear

CoRider — A social network of people who want to share rides.

Pain and urgency includes A) People need a ride somewhere and also that B) Car drivers feel guilty that they are driving in their car alone and could save the environment if they had other people in their car (who would otherwise be driving alone too).

They pointed out that there are 40,000 car sharing postings per month on Craigslist…just in San Francisco.

Business Model: They charge $5 per ride to people who need a ride.

KissMobs — Bringing men and women together based on what locations/events they’re hanging out at.

As women users choose a party/bar to attend, they are  automatically checked in and male customers get notified about the number of women at any bar so that they can decide where to go out.

Business Model: Bar would pay to participate.

WalknPlay — World of Warcraft built ontop of reality

You want to walk somewhere and you see a GPS-map that provides you a game.

For example, one game might be that your game objective is to help hippies fight big-business…so you get points for virtually fighting other users (e.g. who might represent a yuppy).

Basically, this turns any walk that you might take into a game.

Business Model: They make deals with retailers such as coffee shops who will provide coupons for coffee for gamers to use on their walks (with WalknPlay receiving a commission).

fanattix –Loyalty program for college sports fans.

Fans get points for checking in to college sports venues (bars, arenas, Universities, etc.).

For example, a fan could check into a sports bar (he gets points) and then the fan can enter into a “Smack Talk” game with fans of rival teams and you get points (or lose points) based on a game like trivia. Points would also be awarded for tailgating or traveling to see a game.

Business Model: Virtual goods, coupon deals with venues, affiliate marketing deals.

WeddingMix — A social media platform for sharing a friend’s input.

For example, friends of the wedding party vote on wedding details such as which is the best wedding dress or hair style.

Business Model: Customers pay $100 per wedding to get use of the platform.

ShipOx — “Groups of people who don’t know each other do group-buying of shipping services”

The ShipOx Web site will show that there is a certain amount of available shipping space from one city to another and customers can leverage collecting buying to get a discount from what they’d pay if they shipped alone.

Business Model: Commission on shipping payments

Foodwich — A social network of foodies.

For example, a user types in a restaurant that they like (e.g. Osha Restaurant in San Francisco) and you will receive a recommendation of other restaurants you might like such as Burma Superstar (becomes a “foodie” had recommended both of them).

Business Model: Unclear

Loyalty 2.0 – Store owners provide loyalty programs to customers who pay using the Square mobile payment system.

Business Model: Unclear

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Sunday, July 25th, 2010

5 Steps To Inevitability Thinking (E.g. How To Make It Inevitable That You’ll Generate $20K Per Mo. In Ad Revs)

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I remember when my friend Eben Pagan shared the concept of Inevitability Thinking with me — it’s such a simple yet powerful approach to achieving your objective…damn, why didn’t I think of that!?

Victoria the Roman Godess of Victory on Wellington Arch

The easiest way for me to share Inevitability Thinking is to give an example (I’m going to use a hypothetical example of an Internet business I want to build).

To do this exercise on your own you would need:

  • A Calculator
  • Google
  • Your Brain
  • A half-hour or so of time

But, if you want, you can just read my version of this exercise first.

Ok, so here are the steps:

5 Steps To Invetability Thinking

1) Articulate Your Objective

First step is to articulate your objective.

For this exercise, let’s assume your objective is to build a content-based Web site that generates $20,000 per month in advertising revenue.

Sound good?

2) Identify Your Time Frame?

Easy next step: let’s pick a time period to meet your objective of $20,000 in ad revenue per month.

We all want to reach our goals immediately…but let’s be realistic: how does one year sound?

After all, most things that matter in life take time.

One year it is!

3) List Your Inevitability Levers To Achieving Your Objective

Ok, this is still super-easy.

Now you just identify what levers to pull to make it imperative to achieving your objective.

I call these inevitability levers because they are imperative to your objective.

Let’s start at the very top-line of levers you’ll be working with.

For example, to build a content-based Web site that generates ad revenue, you’re gonna need at least these two levers:

A) Advertisements (that are sold)

B) Content (that’s on your Web site)

Note: down below we’ll drill down deeper into a few mini- levers within these inevitability levers.

4) Make Realistic/Conservative Assumptions Quantifying Your Inevitability Levers

You do have to get your hands a little dirty on this one.

Next up, you’re going to start to make assumptions about your inevitability levers.

The key tip about your assumptions is to make them realistic/conservative: afterall, we’re trying to make it inevitable that you’ll achieve your objectives (don’t be overly optimistic).

Let’s start with your advertisements

Assumptions on Selling Advertisements

Advertising revenue is a pretty simple formula: you’ve got to price your ads and you’ve gotta sell your ads.

Let’s start with ad pricing: what’s a conservative assumption we can use on how much you can make from an online advertisement?

Shh, here’s a secret tip on how to track that down: go to a site called “Google.com.”

I searched “average CPM (CPM stands for cost per thousand impressions) of an online ad” and I found that $2.43 is a good average CPM for the Internet as a whole, according to Comscore.

note: I also found a cool graph in this Adify Report that showed CPMs for different vertical markets such as Automotive, Beauty/Fashion, Business, Moms and Parents, Sports, Technology, Travel, Real Estate, Healthy Living/Lifestyle, News and Food (the CPMs in this graph were much higher (average of $7.71 but you want your objectives to be inevitable so lets be conservative and use the $2.43 figure instead).

Ok, let’s use the average CPM of $2.43; if we use that, then that means you’ll generate $2.43 for every 1,000 impressions (aka page views) of your Web site.

To keep things simple, let’s assume that you’re just selling one ad on every page of your Web site.

5) Start Asking Inevitability Questions

Now we need to figure out how much volume of ads you need to sell (since we’re selling one ad per page, we can just call what we’re looking for: “page views” (i.e. each time someone views a page of your content, one ad is served).

Now, bust out your calculator: you want $20,000 per month so you’re going to have to do the following calculation to figure out what would make it inevitable to get enough page views to generate twenty grand:

20,000 ÷ by ($2.43/1000)  =

8,230,452 page views that you would need to generate $20,000 in ad revenue.

Ok, now you have to do the same exercise with 8.23M page views:

What would make it inevitable that you would generate 8.23M page views?

The answer: a certain number of “visits” to your Web site. On the Internet, a page view is generated by a visitor visiting your site and looking at a certain number of pages.

Ok, back to assumptions (and don’t forget to be conservative about your assumptions…after all, we’re trying to make it inevitable that you’ll achieve your objective!).

And don’t put your calculator away just yet either!

Visitor Assumptions

So we need to use another assumption for how many pages a visitor would view to continue our math.

You can go Google your particular vertical, but let’s keep things simple and assume that a conservative estimate is that an average visitor will view 5 pages each time they visit your site.

Calculator-time again:

So, if you want it to be inevitable to generate 8.23M page views, then you would need to do this calculation:

8.23M ÷ 5 = 1,646,000 visits

So, if you had 1.65M visits it would be inevitable that you would generate 8.23M page views and thus $20,000 in ad revenue (using your conservative assumptions of course!).

Ok, so now you might ask:

How the heck am I gonna get 1.65M visitors to my Web site (in a month!)!?

Well, you’re probably already thinking of a few different ways such as:

  • Buying Ads
  • Appearing on Oprah
  • Getting Sites to Link to You
  • etc.

All are good approaches and you could apply inevitability thinking to any of them…but let’s keep it simple.

Let’s say you believe that your Web site’s content can help you attract traffic (remember, content is your other core lever!).

Content Assumptions

Ok, so how much content would you need to make it inevitable that you would attract 1.65M visitors per month?

Ok, you’re gonna have to make some more assumptions…this time around content.

Here’s where I use my trusty SEOBook tool (see How To Have X-Ray Vision About Your Competition) which will tell me both:

  • Number of Visitors To Different Sites
  • Number of Pages of Content (at least according to Google & Yahoo whose job it is to index pages on the Web)

Let’s say that you find that on average your competition generates 100 visitors per month for each page of content that they have (by the way, an example of one page of content would be this article you’re reading right now).

Calculator-time again!

So, if you want it to be inevitable that you’ll receive 1.65M visits in a month through content then you’d do the following calculation:

1.65M ÷ 100 = 165,000 pages of content that you would need

Ok, I know, it sounds like a lot of content.

But, remember, this is one year from now.

And, actually, there are tons of Web sites who generate hundreds of thousands of pages of content with little cost (beyond engineering time and hosting cost).

They get their voluminous content from users (aka “user-generated content”) and many of them do it merely by providing a quality bulletin board or question and answer service.

Check out StackOverflow, for example:

SEOBook tells me they have 8 million pages indexed by Google (note: they were founded in 2000 so they’ve been doing this for 10 years)…and they provide this primarily through offering a Q&A service for engineers.

StackOverFlow claims more than 1M visitors every month…now we’re talking!

Ok, so now what would make it inevitable that you generated 165,000 pages of content?

Well, let’s assume for the moment that you’re going to do a blog instead to generate your content.

Conservation Assumptions Again:

Let’s assume that you can write 3 blog entries a day or about 1,000 per year (I’m giving you a couple of weeks of vacation time!)…well, to get to 165,000 pages of content that would take you 165 years!

The oldest living man right now is only 114 so let’s go to plan B.

Well, there are actually free multi-user blogging platforms that allow you to let others blog beyond just you!

So, let’s assume that you can get other writers like you to post 3 blog entries per day (around 1,000 per year with a few vacation days for them too (you’re no slave-driver!).

So, to get 165,000 pages of content through multi-user blogging then you would need:

165,000 ÷ 1,000 = 165 Blog Writers

Ok, so now what would make it inevitable that you could sign up 165 Blog Writers.

Perhaps you have a bunch of Facebook friends or alumni or colleagues who you could talk into helping you blog. But that would be tough for most people so let’s

Did I Mention You’ll Have To Google A Few Things In This Exercise?

Let’s look around for a writers group…Googling “writers group” gives me WriterMag, a magazine with more than 30,000 writers.

Ok, so what would it take for you to convince 160 of those 30,000 writers (.533% of them) to write for your blog (many writers might do it for free just for publicity!).

Let’s assume that you talked to WriterMag’s ad sales team and they told you that they were super-confident that if you ran a full-page black and white ad in their magazine — offering their 30,000 readers free publicity on your blog — every month for six months that it would be inevitable that you would get your 160 bloggers.

Well, such an ad looks like it would cost about $10,000 according to the rate card on their Web site (you can often get discounts to “rate card” and my guess is that you’d get at least 25% off for a 6-month commitment (times are tough for the publishing industry!).

So, a commitment by you of $7,500 should get you the 6 months of full-page ads.

Ok, we’re wrapping it up now.

The gist of this invetability thinking exercise is that:

  • If you bought $7,500 worth of ads you could get
  • 160 bloggers to create…
  • 160,000 pages of content that would generate…
  • 1.65M visits per month, which would produce…
  • 8.23M page views per month, which could be sold for
  • $2.43 CPM, which would make you
  • $20,000 per month in advertising sales…
  • in one year’s time

This is of course a simplified version of how you’d really conquer your objective (the devil will be in the details and you’re going to have to do your homework on levers, assumptions and the approaches you use).

But the point is: if your levers and assumptions are roughly correct, you will roughly achieve your objective through this approach.

I hope you found this inevitability thinking exercise useful.

Thanks, Eben!

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Thursday, July 22nd, 2010

4 Easy Leadership Tips From Coach Bill Walsh

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I love to read books on leadership.

The latest one I finished (which I borrowed from the awesome San Francisco Library) was The Score Takes Care of Itself by Steve Jamison & Craig Walsh…about the leadership style of football coach Bill Walsh.

Why should you listen to Coach Walsh: well, among other things, he invented a new offense now widely used in football and turned the worst team in the league (the San Francisco 49ers) into Super Bowl champs (in just two years).

There were four leadership techniques that Walsh shared that I found most useful:

Four Leadership Tips From Bill Walsh

1) Making The Best Of What You Have

“What assets do we have right now that we’re not taking advantage of?”

E.g: Walsh took inventory of his Bengals’ struggling offense which was undersized (meaning running the ball was a big challenge) and not capable of passing for long yardage (quarterback Virgil Carter could not throw very far) (though he could throw decently for short yardage).

Walsh then took stock of what he had to work with in terms of field real estate and had an uh-huh realization that  they had 53.5 yards of width on the field (about half the distance of the length of the field) and the availability of 5 potential receivers.

Thus the West Coast Offense was born: the idea of throwing more often, to more receivers, for short yardage.

2) Good Leaders Give a Healthy Mix of Positive Criticism (not just negative/constructive criticism).

“If you’re growing a garden, you need to pull out the weeds, but flowers will die if all you do is pick weeds. They need sunshine and water. People are the same.

They need criticism, but they also require positive substantive language and information and true support to truly blossom.”

3) Good Leaders Look For These Five Qualities In Their Hires

  1. A fundamental knowledge of the area they’ve been hired to manage
  2. A relatively high — but not manic — level of energy and enthusiasm and a personality that is upbeat, motivated and animated.
  3. The ability to discern talent in potential employees.
  4. An ability to communicate in a relaxed yet authoritative — but not authoritarian — manner.
  5. Unconditional loyalty to both you and other staff members.

4) The Four Most Powerful Words In Leadership

“I believe in you” (or equivalent words of your own).

Walsh writes that even Joe Montana (who already had a bunch of confidence) benefited from his coach telling him he believed in him.

As a student of leadership myself, I strongly agree: providing confidence to your team (or friend or spouse) is perhaps the most powerful lever you can pull to help them optimize their performance.

And Walsh adds: And nobody will ever come back to you later and say “thank you” for expecting too little of them.

Note: If you want to read more about developing leadership, check out my other leadership articles.

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Wednesday, July 21st, 2010

Here Are The 5 Major Stages of Startup Funding

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A friend of mine recently asked me about the different stages of startup financing –  so I figured I’d write it down for you too!

There are certainly other sources of startup capital besides the ones listed below, but these five are the top ones; and they’re typically used roughly in the order I list them.

File:Euro banknotes.png

5 Stages of Startup Funding

1) Seed Capital

This is typically the very first investment of money used to for market research and developing product.

It can come from the founder’s personal savings (e.g. from a severance package from the founder’s prior job) or from acquaintances (aka a “Friends & Family” or “F&F” Round).

Seed capital can be received as a loan on in exchange for common stock.

Note: Credit cards/American Express are also used as a startup fund option around this time.

2) Angel Investor Funding

Since seed capital is sometimes limited, it is often necessary for an entrepreneur to tap into wealthy individuals outside their friends & family — this is often called an “Angel” investor.

You can receive money from an angel investor as a loan that is convertible to preferred stock (often it converts to the Series A round of stock below).

Friends & Family investors sometimes participate in this “Angel Round” of financing.

3) Venture Capital Financing (Series A, Series B, Series C Rounds, etc.)

Venture capital (VC) funding is typically used by companies that are already distributing/selling their product or service, even though they may not be profitable yet.

If the company is not profitable, the venture capital financing is often used to offset the negative cash flow.

There can be multiple rounds of VC funding and each is typically given a letter of the alphabet (A followed by B followed by C, etc.)

The different VC rounds reflect different valuations (e.g. if the company is prospering, the Series B round will value company stock higher than Series A, and then Series C will have a higher stock price than Series B).

If a company is not prospering, it can still get subsequent Series-rounds of financing, but the valuation will be lower than the previous series: this is known as a “down round.”

These rounds may also include “strategic investors:” investors who participate in the round and also offer value such as marketing or technology assistance.

In the Series A, B, C, etc. rounds of financing, money is typically received in exchange for preferred stock (as opposed to the common stock that insiders/seed capital sources (and perhaps even angel investors) receive).

If you want to learn some tips on VC funding, check out my How To Raise Money From A VC: Insider Tips article.

Note: A line of credit from a bank is another startup fund option around this time as well.

4) Mezzanine Financing & Bridge Loans

At this point, companies may be eyeing the following types of opportunities that require additional funds:

  • An IPO (initial public offering)
  • An Acquisition of a Competitor
  • A Management Buyout

To do so, they can tap into mezzanine financing or “bridge” financing.

Mezzanine financing is often used 6 to 12 months before an IPO and then the IPO’s proceeds are used by the company to pay back the mezannine financing investor.

5) IPO (Initital Public Offering)

Finally, companies can raise money through selling stock to the public in what’s called an Initial Public Offering…or IPO.

The IPO’s opening stock price is typically set with the help of investment bankers who commit to selling X number of the company’s shares at Y price, raising money for the company.

Once the stock is out, it is traded through a stock exchange (like NASDAQ or American Stock Exchange).

Companies can offer more of their stock through additional offerings.

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Thursday, July 1st, 2010

Remote Workers: Check Out Your New Virtual Colleague!

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Here’s a cool robot that can cruise around your home or office with a 5 mega-pixel HD camera with zoom due out this Fall from AnyBots.

Not bad for $15,000.

Applications/Features?

  • If you work from home, this robot can cruise to your front door and show you who’s ringing your bell
  • This robot can be your eyes and ears at another location (while you stay put)

Check out these videos.

This one is a corporate video from AnyBots.com (but it shows the robot in action):

Here’s an example of AnyBot checking out a White Board session (so that you don’t have to be there to collaborate):

Here’s a separate story on AnyBots from Network World:

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