Here is some of what we are looking for:

• Charming
• Likable
• Persuasive
• Deeply extroverted
• Articulate
• Loves networking
• Aggressive and ambitious
• Customer focused – the kind of person who answers every email and phone call before going home for the night.
• Customer service oriented
• Concise – no buzzworders please. Nothing is more annoying than someone who speaks – regardless of how eloquently – and delivers many words but no content.
• Presentable – will present well for the Oyster brand, particularly when speaking with advertisers or hoteliers. No one slick please.
• Smart – can understand the needs of the customer and help them become a better marketer as a result.
• Hard working – the sales and marketing team will run on a 9AM to ~8pm schedule 5+ days/week so this is not a job for everyone.
• Number of years of prior work experience – 1 to 6
• Willing to be assessed continuously – Understands that the sales and business development org is a quantitative metric driven  environment with the derivative potential (and likelihood) for high churn among those who don’t meet the highest standards of performance. For the right people, that metric driven assessment is a boon, for others it’s a nonstarter.
• Prior experiences preferred; not required for people who have tremendous aptitude but the ideal candidate has at least a few of these.
  • Has sold online advertising before
  • Has sold to tourism bureaus before
  • Understands the Internet. Can easily name 5 sites that they use frequently and explain what makes that site best in class (Google, amazon and any mail program does not count)
  • Have sold to hotels before – understand how hotels think about marketing and sales
  • Has sold something, anything really, before and liked it
  • Has worked in the hotel industry
  • Was an entrepreneur – even if their business was not successful, I’m still interested (for obvious reasons, it’s hard to hire the entrepreneurs who have been very successful)
  • Passionate about hotels – kind of obvious but worth stating.
• Locations
  • NYC – currently the most desirable
  • LA
  • SF
  • Miami
  • Vegas
  • Orlando

If you’re profitable, you can control your board.. We negotiate for the wrong thing because we don’t know what our goals are. “Who gives a shit what your valuation is? At the end of the day your valuation will be more impacted by a board made up by a bunch of old white men who show up once a month for half a day. It’s a lot easier if you just tell them what you’re going to do - Mark Pincus CEO of Zynga

For many an entrepreneur, raising venture capital (VC) money is an important – if not critical – milestone in the history of their business. In fact, raising VC money has become such an important part of the entrepreneurial experience, at least  for certain types of enterepreneurship (e.g. consumer Internet) that it’s hard to remember that raising VC is still a relatively new way to finance a new business – the VC industry having only really been established in the 60s with the likes of Arthur Rock (early investor in Apple and Intel) establishing funds that did nothing else. There are so many impressive stories about VC funded businesses (Google, Cisco, Hotmail, AdMob, Zynga, Etsy to name just a few) and so many “celebrity VCs” including Vinod Khosla, Don Valentine, Michael Mortiz, John Doerr and Fred Wilson that it’s easy to forget that the majority of small businesses in the US don’t ever raise VC money nor could they ever nor should they.

Given the brilliance of these VCs and the many stories that are written about the great success that VC funded companies have had, it’s hard to fault the entrepreneur who views raising VC money as a success onto itself. But the reality is that the likes of Cisco, YouTube and Google’s are massive exceptions to the rule. The VC industry as a whole has a negative ten year IRR. Obviously that did not happen because every company that raises VC is generating large returns. Billion dollar payouts are not the norm – they are the rare exception and most VC funded companies fail outright, many of them after raising a lot of capital.

Over the past 10 years I’ve raised approximately $25M in VC money from funds small and large – I’ve been both smart and dumb about it and lucky (raised capital in March 2008 before the world blew up) and unlucky (raised money in 2002). I’ve lost some money along the way but I’ve also had some moderate success and made some good money along the way. I’m still working on hitting a home run but my primary motivation is innovating – I love creating teams to create unique and valuable products that customers love.

With that in mind, here is a short primer on what every entrepreneur should understand about the VC industry. I’ll start with some high level context about how to think about the role of VC in your company, how raising VC impacts your destiny as an entrepreneur and how you actually make money.

Raising VC equity = selling a piece of your company that you can never get back. Ever. It’s marriage with no divorce. The capital you receive is a means to an end with lots of strings attached.

Be realistic – You’re an entrepreneur so you certainly have a tolerance for risk but you are likely a raging optimist as well. After all, you need a certain amount of ability to delude yourself if you are going to start a company; if you were completely honest with yourself about the risks, you’d probably never get started.  But while it’s great to be ambitious and set aggressive goals, you have to be very careful not to create a financial structure that only puts cash in your pocket (vs theoretical gains which are on paper) if you achieve very large outcomes at the end of a very long road. You may want to make $100M but if you currently have no net worth, making $10M makes you rich in a way that changes your life forever. Once you’ve made $10M, you can worry about making $100M, and you may well want to because it’s fun, but don’t lock yourself into a structure that only allows you to make money if you achieve a home run; entrepreneurship is about many things beyond just making money but the whole experience becomes dramatically more interesting and enjoyable if you are being rewarded with cash in your pocket. I’ll address this in a later post but contrary to what many VCs believe, entrepreneurs who make money along the way are actually better – and less risk averse – entrepreneurs who are freed to think more broadly.

The less equity (note debt has limited impact on this) you have taken on and the more control you have, the more flexibility and leverage you have to get to your first milestone and then go beyond. While your dream of the billion dollar business may continue to guide you – and for many a VC it may be the only outcome they really get excited about  – far smaller outcomes can create significant wealth and enjoyment for entrepreneurs who have been prudent with their capital structure. It’s important to remember that the number of billion dollar liquid exits (vs billion dollar paper valuation) is extraordinarily small. Those homeruns are what garner all the press but that’s the survivor bias of the press. The majority of the stories are the small exits and failures that you have never heard of.

Understand the financial incentives of everyone at the table A company that has created $100M of  liquid capitalization (meaning it could sell to someone for $100M in cash) might be effectively worthless to the entrepreneur if they’ve mismanaged their capital structure by raising too much capital. Imagine a $100M offer for a company you founded but where you’ve raised $30M of VC and took the last 20M of it at a very high price (say $70M). You own 20% of that company so if you sell, you take $20M in pre-tax cash home with you. That could be pretty compelling – especially if you don’t think it’s likely that you can – on a risk adjusted basis – create a company worth $300M+. After all, not every business can become a business worth many 100s of millions of dollars – some categories are just too small. But unfortunately for you – the entrepreneur – the VC fund that invested the most recent $20M of new equity at a $70M valuation has no incentive to sell at a $100M valuation. Smart VCs obviously try to avoid situations like this in the first place. They want companies that can hit a homerun and if they think that you as the entrepreneur don’t have a similar goal – they’d be foolish to invest that much money at that big a price. But the reality is that despite all the diligence before the investment is made, at the moment a VC invests there is a lot about the future that is not knowable – including how big the ultimate opportunity will be for that particular company. And that is where the trouble begins – a company that has realized that $100M is a good outcome and has raised a small amount of capital is going to have a much easier time making the decision to sell than will a company where the expectations were set for something far larger. And while VCs do sometimes decide to sell in these situations (Mint is a fantastic example), it’s not necessarily common. Many VCs would argue that they have no interest in forcing an entrepreneur to work against her will but and most of them probably mean it. But instead of hoping for the best, create a capital structure that insures that you have options. For example, if you do decide to raise that additional 20M on a 70M premoney valuation, maybe structure the deal so that you can force the sale so long as they get their money back. VC incentives are often quite different than the incentives of the entrepreneur and that division can be more pronounced when you are working with a tier 2 or tier 3 firm and interestingly, your success or the potential of success can magnify the division. I’ll explain more later when I discuss why choosing the right VC firm is absolutely critical.

Understand your own motivations - it’s not just about understanding what motivates the VC firm (not the partner – I’ll elaborate later) – knowing your own incentives and motivations is critical. Do you really want to hit a homerun or can you live with “only” $20M? This is unique to each person – not everyone views the world in the same way. And your perspective on this can change over time as a result of your circumstances chaning. If you started the company when you were single but you are now married with kids, you may need a cash to pay for a house and tuition far more than you need – or want – the massive payout. As you think about your financing strategy, keep your options open and  remember: Capital structure and control structure is destiny for a business.

In the next posts I’ll cover various topics related to the financing process

• Entrepreneur vs VC economics and how these can differ greatly, particularly when you’ve raised money from a VC fund that is not performing well
• IRR vs ROI – why IRR is largely irrelevant for VCs
• Selling control – don’t do it
• Raising a lot of capital = selling tomorrow’s equity at todays price
• Digging into the details – Understanding the variables on a term sheet. Price is but one of them.
  • Liquidation preference (and multiples on them)
  • Participating preferred
  • Board structure
  • Specific rights that the preferred shareholders may seek that make them – and not the board – the arbiters of certain strategic decisions (like selling the company)
  • Information rights
• Hired gun “professional CEOs” and why it’s a part of the VC playbook that you should control the execution of.
• Who should make the strategic decisions at the company you founded – the advantage insiders (day to day operating executives/founders) have versus outsiders (board members) when making strategy decisions
• What great VCs do well
• Being CEO does not mean you have to be the most experienced or most accomplished person in your company at every task or competency that your company has to have to be successful.
• Your VC relationship is with the  fund, not the partner who sits on your board
• Premoney valuation does not equal how rich you are or how rich you will be
• Taking money off the table – do it
• Small companies with big company processes and structures have the worst of all worlds – they don’t have the financial resources of a big company and they don’t have the nimbleness of a startup. And yet VCs often want to “professionalize” the management of a startup and make them look more like a big company.
• Understanding how taxes impact how much you put in the bank
• What is a dead VC firm and what does it matter to you how the VC firm that invested in you is doing?
• How you can become a victim of your own success in the company you founded

To be continued

Printing presses, trucks, ink, and union wages simply can’t compete against WordPress, servers, and electrons. And they won’t which is why we should expect that most printed news is going to simply disappear – as anachronistic as a steamship plying the Atlantic ocean or a horse and buggy taking a businessperson home from Wall Street to their suburban home on 70th street and West End Avenue.

The revolution in publishing infrastructure - presses to electrons - means that any niche can be targeted. There are very few barriers to entry for the would be publisher since the cost of a hosted Word Press account and plenty of bandwidth is in the low double digits dollars per month instead of the 100s of thousands or millions it would take to get a printing press and truck distribution network up and running.

And if, as an advertiser, you can target – and track – your customers on a micro basis, the need for an expensive broadcast vehicle like your local paper just dissolves. Suddenly, where there was an inefficient (read: untrackable and unmeasurable) local paper with its heavy cost structures (press, paper, trucks, labor union) a thousand targeted blogs are on the scene. Supply of ad space grows massively while ad demand stays the same or – by the removal of inefficiences – declines. Poof – there goes an industry. I would guess that a large part of why newspapers and printed magazines still have as much revenue as they do is that because the marketing and advertising industry is still in its infancy of learning how to actually make use of – and manage their spending on – the newly available targeted sites. But learn they will so the trend here is both obvious and inexorable.

Of course, the need for journalism still exists but society has no real intrinsic need for printed papers. Now journalism needs to find a new entity to subsidize it. It’s hard to predict where that will come from? Will it come from friendly billionaires like Gates, Buffet and Soros?

Shirky dissects it all far better than I ever could and compares our current situation to the revolution that happened when Gutenberg invented the printing press. Now as then, it’s almost certainly impossible to predict what the future will look like other than to know that many things will be tried, many of them won’t work and that the future will look different than the world we have known.

Here is a portion of Shirky’s brilliant essay which is a must read:

If you want to know why newspapers are in such trouble, the most salient fact is this: Printing presses are terrifically expensive to set up and to run. This bit of economics, normal since Gutenberg, limits competition while creating positive returns to scale for the press owner, a happy pair of economic effects that feed on each other. In a notional town with two perfectly balanced newspapers, one paper would eventually generate some small advantage — a breaking story, a key interview — at which point both advertisers and readers would come to prefer it, however slightly… This would increase its dominance, which would further deepen those preferences, repeat chorus…

For a long time, longer than anyone in the newspaper business has been alive in fact, print journalism has been intertwined with these economics. The expense of printing created an environment where Wal-Mart was willing to subsidize the Baghdad bureau. This wasn’t because of any deep link between advertising and reporting, nor was it about any real desire on the part of Wal-Mart to have their marketing budget go to international correspondents. It was just an accident. Advertisers had little choice other than to have their money used that way, since they didn’t really have any other vehicle for display ads…

That the relationship between advertisers, publishers, and journalists has been ratified by a century of cultural practice doesn’t make it any less accidental.

The competition-deflecting effects of printing cost got destroyed by the internet, where everyone pays for the infrastructure, and then everyone gets to use it. And when Wal-Mart, and the local Maytag dealer, and the law firm hiring a secretary, and that kid down the block selling his bike, were all able to use that infrastructure to get out of their old relationship with the publisher, they did. They’d never really signed up to fund the Baghdad bureau anyway.

Given the noise of new and existing offerings that you are competing against, here are a few things that I think are critical to remember:

• Intersect customers where they already are – your potential customers are largely not going to come find you – you need to go find them where they already are. You can have the best product in the world but if you don’t have a good way to get that product to customers you are going to have a problem.
• Word of mouth (not viral) has more potential than it ever had: The good news is that – particularly for consumer web products – it’s vastly easier than it ever was for word to spread about great products. Twitter, Facebook, mass adoption of e-mail, digg, a massive number of blogs covering every last little niche and Google – both paid and organic – have created a massive distribution network that speeds word of mouth. The noise is vast but if you excite customers, word spreads far faster than it ever did in the past. That’s certainly a part of why we are now seeing companies capture massive numbers of customers in just a few years (it’s still not a few months) where it used to take a decade or more for most. Think of local reviews as an example. In the past decade CitySearch grew and became massive and within the same decade Yelp overtook it.
• You have ten seconds to explain yourself. Once you find the customer where they are and they come to your site, how clear is your offering? How many websites have you gone to where you can’t figure out in the first 10 seconds what it is they do and why you should care? I’m guessing you don’t stick around for several more minutes trying to figure it out. Everyone already knows and trusts Amazon – not much, if any, explanation is needed. Further, customers are willing to invest a certain amount of their time to hear what Amazon has to say when it wants to announce something new. Apple is obviously the extreme of this where their fans wait with baited breath for the latest pronouncements from Cupertino and the supreme leader, Steve Jobs. But you are not – yet – Amazon or Apple and so the vast majority of people who get to your home page are a) new and have no idea what you have to offer them and b) going to give you about ten seconds to explain to them what you do. Use the time wisely.
• Doing well at the first ten seconds is not a license to overwhelm your users with features. Most sites fail – badly – at the first ten seconds. A few – like Mint.com do a great job. But beneath the first ten seconds, the functionality has to unfold elegantly. You can’t just dump a ton of “features” on your users. Paul Buccheit, the original creator of Gmail described this eloquently:

… While developing Gmail, we implemented a lot of features that were either not released, or not released until much later. Some of the most interesting ideas (such as automatic email prioritization) never made it out because we couldn’t find simple enough interfaces. Other ideas sounded good, but in practice weren’t useful enough to justify the added complexity (such as multiple stars). Other features, such as integrated IM, simply needed more time to get right and were added later. Our approach was somewhat minimal: only include features that had proven to be highly useful, such as the conversation view and search. It’s my impression that Wave was released at an earlier stage of development — they included all of the features, and will likely winnow and refine them as Wave approaches a full launch.

• Your customer cares about the person they love the most – that’s not you. When speaking to them, talk about what’s in it for them instead of what you’ve done. Benefits, not specs and features. As engineers we tend to be pretty bad at this – we build something really cool and get enamored with it and so we want to tell everyone about all the cool stuff we’ve built. The problem is that your customer does not really care about what the product has in it – they care about what it does for them. Among the many things that Apple understood with their launch of the iPod this was an important one. Whereas their competitors were engaged in a speeds and feeds price war, Apple simplified the product and talked about what was in it for the consumer; “being cool and different” was a critical part of the sell. Everyone else was trying to impress the consumer with how many gigabytes they had packed into their latest device.
• You are not just competing against your competitors - you are competing against all the other things that your customer might spend their day doing – all the products that can substitute for yours even if they do something entirely different. Music sites don’t just compete against music – they also have to compete against blogs, Facebook and video sites to name a few. This is all the more true if the product requires the user to adopt a new behavior (hunch is a good example of this) instead of just improving their experience with an existing behavior (which is where Oyster plays). Excepting for the power of novelty – which I’ll expand on in a later post – consumers tend to learn new behaviors very slowly. (anyone remember the Go corporation founded in the late 80s?)

Photos of the Haiti disaster from Boston.com’s Big Picture

Oyster continues to be a dream job for me – my “work” often involves visiting hotels in some of the best vacation destinations in the world. I don’t imagine I’ll tire of that anytime soon. And when it comes time for a vacation, I don’t need or want a change of pace from my work life – I stay in hotels instead.

Here are some of my favorite hotels in two of my favorite US cities:

Las Vegas Hotels:

• Wynn Las Vegas – The Wynn Hotel and Encore Las Vegas are sister hotels – attached by a long hallway that serves as a high end shopping mall that the two hotels share in common. Steve Wynn is a legend and pioneer in Vegas having built the Mirage, Treasure Island, and the Bellagio before building the Wynn and then the Encore. His attention to detail in the Wynn and Encore is maniacal. The design is, to me, the epitome of Vegas over the top without being gaudy (by Vegas standards). Patterns and textures rule the day here – a friend of mine said to me that she guesses that Wynn put all of his designers in a room, gave them acid and told them to go to town.
• I love the Venetian as well – though I have not stayed at the connected expansion property – the Palazzo Hotel Las Vegas – and used to frequent Delmonicos restaurant though I think it is now past its peak with restaurants like CraftSteak Las Vegas in the MGM Grand Las Vegtas and Michael Mina’s Stripsteak in the Mandalay Bay Hotel Las Vegas outdoing it not to mention Botero in the Encore Hotel.
• The Trump Hotel Las Vegas is a fantastic hotel and due to a glut of rooms in Las Vegas, it’s pretty inexpensive with rates often under 100 dollars/night. It has a limited supply of restaurants and no casino in the hotel but it’s an easy walk from the gaming and restaurants at the Wynn or Encore and an even shorter walk to the massive Fashion Show Mall.
• For an off the strip experience, I really enjoyed Green Valley Hotel, Las Vegas and while it’s an even longer drive from the strip or the airport, the brand new M Hotel and Casino Las Vegas is impressive for an off the strip casino.
• The rooms at the Four Seasons Hotel Las Vegas are not up to the standards I hold the Four Seasons chain to – in particular the Four Seasons Miami – as the light in the rooms has a greenish hue to it as a result of the glass that was used on the exterior of the building (same building as Mandalay Bay Hotel Resort Las Vegas). But the poolside food and drink service at the Four Seasons Las Vegas is unsurpassed among Las Vegas Hotels.

New York Hotels:

• I live in Manhattan so I don’t typically stay in New York hotels here though I’ve very much enjoyed it on the several occasions I’ve done it – it feels like a vacation in my own city with the new perspective that it brings. But like many New Yorkers, I love to eat out and hotels in the city have some great restaurants. The Mandarin Oriental, New York has a fantastic lobby bar with some of the best views of Central Park that (bar) money can buy. The King Cole Bar at the St Regis New York is famous and a great place for a high class Manhattan drink. Unfortunately, Town in the Chambers hotel has closed but a new restaurant – Má Pêche- by celebrity chef David Chang of Momofuku fame will be opening shortly. I enjoyed my – fancy and expensive – meal at South Gate restaurant in the Jumeirah Essex House (hotel) New York. I love Nougatine in the Trump International Hotel and Towers – it’s a less fancy (and less expensive) version of its Michelin three star sister restaurant Jean Georges. Try the scrambled eggs at Nougatine.
• When my parents visit, they stay at one of several Upper West Side hotels including On The Ave, The Lucern Hotel New York and Hotel Beacon NYC.
• I’ve stayed at the Mandarin Oriental NYC, the Bowery Hotel NYC and the Trump Hotel, NYC and loved all of them – particularly ordering room service from Jean Georges while staying at the Trump.

Having observed and in some cases successfully predicted the changes of the past decade, here are my predictions for the major changes in the coming decade:

• Pervasive urban high speed (1.5Mbps to 10Mbps) mobile bandwidth such as what Sprint is doing with 4G/WiMax. The current ~1Mbps 3G network – offering the speed I had on my Covad SDSL line in 2000 – is not anywhere near fast enough for todays internet and is – as evidenced by the numerous complains about AT&T’s network – the limiting factor for a lot of the mobile internet. The limited bandwidth also dictates engineering decisions when developing for mobile hence the apps – instead of  browser based services – for the iPhone. Like Fred, I’m excited about mobile – and Android in particular but until we see higher speed connectivity, it will remain a bad version of the Internet.
• We do NOT all migrate to one mobile device. The keyboard and hand feel of a Blackberry makes it ergonomically suited to do certain things that the iPhone’s larger touch screen simply cannot do. The gating factor here is NOT technology but rather the human body and the hand in particular. I used the Verizon Droid and it’s too much of a compromise: typing on it is nowhere near as good as typing on the Blackberry and browsing on it is not quite as good as the iPhone. I believe that it will remain hard or impossible to create a device that is both great for typing and as good for browsing as the iPhone is. For those who need to type and browse on a mobile device, two devices will likely be the norm – everyone else will choose the application that is most important for them and choose a device based on that. I have an iPod touch and a Blackberry – since email is my most important application and the iPhone is basically not a typing device – no matter what Apple fanboys may claim – I put up with the lousy Blackberry browser in order to benefit from the better hand feel.
• Handheld computers will increase 30% in size and at least double their screen resolution – it’s hard to overstate the importance of screen resolution. An iPod that has 30% more surface area but twice the resolution is worth the size tradeoff.
• Mobile computing has its limits – like so many technology fads – and there have been many – the early adopters who are vocal get really excited about the new thing while it’s novel only to leave the latest and greatest thing behind when the novelty has passed – RSS and push technologies are but two of the examples that stand out in my memory. Mobile computing, while clearly far more substantive than other fads of the moment, is in that euphoria period. If you have not used a desktop PC or Mac with a 30″ monitor, you should – it will be hard to use anything smaller afterwards. As the monitor on our wall (currently called a TV) starts to serve double duty – both lean forward and lean back UI experiences – a larger portion of the population will have access to very high resolution screens. The mobile device is nice but 2000+ horizontal pixels, 100Mbps+, and a real keyboard and mouse blows the iPhone out of the water. Unless I have to, I don’t use my mobile device (Blackberry and iPod Touch) – it’s not nearly as good as a laptop or a desktop.
• Mobile computing hardware commoditizes. An incredibly powerful desktop PC has less than 500 dollar of parts in it so why does an Apple iPod Touch cost 200 to 400? There is a reason why Apple has such amazing margins. Apple has set a great example – but not a standard – for others – notably Google – to copy and copy it they will. Google has a huge incentive to commoditize the complement – they benefit when more people use mobile computing so they want to bring the cost of mobile computing down. Apple needs to sell devices to make money – Google does not.  It will get interesting when Google dramatically lowers the price of an Android device that is nearly as good as the iPhone/iPod touch. With the Droid they’ve gottten very close to doing that. Apple’s margins are going to be compressed. It’s hard to get excited about shorting Steve Jobs but I believe that on the backs of the incompetence of the risk averse corporate cultures of Nokia, Motorola and Microsoft, Apple has built a temporary advantage that will disappear over the next two to four years as others – Google in particular – race to copy them. For mobile computing to go really mainstream (billions of users not 10s of millions) the device needs to be 50 dollars, not 200 to 400 – and I believe Google Android is going to make it happen with a great OS that any hardware manufacturer can use. Expect 50 dollar Android devices by early 2012. Amazon and Google will partner to make a seamless digital content buying experience that is as good as what Apple offers with iTunes.
• Mobile device-specific apps lose their importance and are replaced by simpler and better standards for web browsers on mobile devices. The mobile browser standard will also be able to deal with off-line scenarios though off-line scenarios will be fewer and further between as mobile data networks improve. For the likes of Yelp to have to write not only for the PC based browser but also an app for the iPhone, Blackberry (with the myriad versions BB OS and hardware levels) and Android makes no sense. We are supposed to be getting away from device dependent development and we will. A core advantage of the iPhone – the early lead in apps derivative from the broad adoption of their first to market innovative device – wanes. Blackberry and Google both benefit from eliminating that Apple advantage and will invest heavily in doing so. It becomes harder for Apple to maintain an advantage with more innovative – and better looking – hardware though it’s very hard to bet against Steve Jobs. If Steve’s health issues recur, all bets are off and Apple could lose 10s of billions in capitalization much faster than is conceivable today. With a mobile computer replacement cycle of two years or less, it does not take long for someone else to come along and take Apple’s share. I find it hard to forget that the first Mac that I had in 84 was supplanted by a Windows PC. Apple’s design and pricing arrogance (but not its constantly failing hardware) has been it’s advantage so far but will be a liability in the years to come.
• Voice and data will not be sold separately on landline internet connections or on mobile devices - packets are packets and they won’t be priced differently. My iPod touch – connected to WiMax or WiFi – will do just fine as a phone and why should I have to buy my minutes from the mobile DATA network.
• Extreme high speed (100Mbps+) landline internet dominates. Verizon with FiOS has an early lead and will likely come to be seen as having been very prescient. The existing cable networks are going to be crushed by unicast video. The FiOS network will be able to keep up without a problem. We have Cogent 100Mbps Internet access at the office in NYC (for $1000/month) and it is a total game changer relative to my – quite fast – Time Warner cable modem.
• Twisted pair copper phone networks (traditional plain old telephone service (POTS)) will be largely – but not entirely – phased out. Landline voice will continue to exist but will run over VoIP and the VoIP does not run on a twisted copper pair infrastructure. Phone companies that don’t invest in an infrastructure able to handle all forms of high speed IP traffic lose to their competitors who do.
• Unicast video ala AppleTV, Cable TV video on demand, Hulu and NetFlix on demand instead of broadcast where certain shows are shown at certain times. The DVR market is largely dead by the end of the decade having been replaced by unicast video on demand. It’s about to get much easier to watch video downloaded off of the Internet on your TV in lean back mode.
  • Microsoft figures out how to leverage the broad deployment of the Xbox
• Professional content remains extremely important, particularly in video. Creating bad video is very easy  - those who are good at creating something worth watching will continue to be paid for making it though not as much as they used to and as consumers we will be willing to pay for it (via watching ads or direct payment). The fact that the distribution mechanism has changed does not change the fact that skill is needed to produce high quality content. No, user generated content (UGC) does not take over the world. It remains important but more and more it coexists with – and comments on – that which is produced by experts. Have you made your way through reviews in Yelp lately? Here is how it goes: “I loved it, I hated it, I loved it, I hated it”. I’m obviously putting my money and my time where my mouth is on this one because after reading 20 reviews on most any UGC site – with the exception of Amazon’s reviews on specific consumer electronics and on some books – I’m typically more confused – and more tired – than when I started and when I speak with the normal people I encounter (normal here is defined as not working in Silicon Valley and not a major contributor to a UGC site) I hear the same thing. How did Paul Kedrosky choose which dishwasher to buy? He went to Consumer Reports. And contrary to what Paul thinks he experienced, it was not a search issue but rather a content issue – deserving of a post onto itself.
• We rely on editors more and more to help us navigate through the noise. Those editors will use new mediums such as Twitter and Facebook to disseminate their insight but the role of the editor will be similar to what it has always been – to make it less work to find interesting things. The world is obviously not going to regress to the three network TV stations of old but the few are still going to produce content for the many. As it is, my Facebook and Twitter feed is already a 90/5 balance – 90%+ of the content I see in it is produced by fewer than 5% of the people I’m connected to. I expect this to further polarize as the novelty of these new platforms starts to wear off over the coming one to three years.
• We see massive upheaval - we are in the 2nd inning of Internet innovation with the critical 2nd to 7th innings to be played during the coming decade. The Internet has only been a mainstream consumer service in the US for 3 to 5 years depending on how you are counting. Take a look at Michael Arrington’s end of 2005 summary of apps he could not live without – does it surprise you how many of those sites are not particularly important just four years later?
• Social is important but has its limits - Social online is actually not that new - electronic communications mediums have been social since they were first invented. In fact, long before the browser came along and started to popularize the Internet, those who were online in some way were using things like BBS and chat rooms. We will find that the 30 to 70 year olds of 2020 are about as social online as the average 30 year old is today (today’s 30 year olds grew up with the Internet). Unless you are hyper social, under 25, or live in Silicon Valley or New York, you won’t check in at a bar with FourSquare or its ilk – you will just go up to the bar and order a beer. The Internet will, thankfully, not replace the real world. Contrary to what Fred believes there is to learn from the (decidely offline) San Telmo market in Buenos Aires for the online world, I think there is relatively little to learn because they are dissimilar experiences. Going to a mall or a market is social experience in that it is a way to interact with others by being in their presence. It can be a largely passive social activity while still being social. The web requires active social engagement to create a social environment because there is no equivalent to the offline scenario of being around other people without engaging with them. If you and I are both on Amazon but don’t interact with each other, we don’t engage with each other – the end. If we are both at the farmers market on Union Square, we do engage with each other even without interacting with each other. The majority of commerce on the web will remain a non social experience.
• Learning from the young – particularly when it comes to the social Internet – has its limits - kids 10 to 25 are in a unique phase of life. They have limited responsibilities and are in a highly social part of their life. As people age, real life starts to intrude – friends move away, the responsibilities of taking care of their own kids (and parents) takes up more and more time, and work becomes more taxing. Look to those who are currently 24 to 28 to see how their internet usage behavior changes over the coming five years. I expect that in 10 years, those who are currently 24 will behave a lot like today’s 34 year olds (most of whom were early adopters of the internet having gone to college when the browser first came onto the scene). I’m reminded that even though Apple always focused their Mac marketing on the young with the expectation that the young would eventually become the old and take their Mac’s with them, it never worked. Young people don’t become older people with the behaviors of their youth – they become older people. You can’t understand the older people of 2020 by looking at the youth of today.
• Email is not dead – email is not going away, far from it – it’s here to stay.
• Entrepreneurs will not learn to be be very weary of early adopter behavior as an indicator for figuring out what to build - what works for an early adopter like Michael Arrington may well not work at all for a mainstream consumer.

• Google remains dominant in search but search becomes marginally less important. As Internet brands and the consumer Internet mature, we will direct navigate to more and more sites or direct nav to a site via Google [Nikon D700 Amazon]. This already happens with a few select brands like Amazon, NewEgg (if you are a computer geek), Ebay, Zappos and others. My expectation is that as the Internet matures, each sector – books, electronics, computer parts, etc. – is going to have one to three well known brands in it.
• SEO will go the way of spam – spam used to be something that was front of mind – the spammers did it because there was money in it and consumers suffered. Today, spam is largely – but not entirely – under control even though domains – like the Oyster.com domain – get massive amounts of spam (about 99% of the email to the oyster.com domain is spam). I expect that the opportunities to spam search engines with various SEO tactics will largely go away and success in search will be closely related to success with real customers. Those who create value for real customers will do well in search and it will be hard to find exceptions where sites win in search despite offering limited or undifferentiated value to consumers. Basically, Google – or whoever beats them – will be better than the spammers at figuring out what is content and what is spam. The basics of SEO – such as making your site crawlable by search engines – will be well understood by most anyone building a website. Everything you need to know about SEO will be readily available – as it basically already is – from Matt Cutts or whoever is doing his job at Google.
• The Yellow Pages and 800Free411 go out of business entirely. You don’t need to call 411 (free or not) if you are near a computer and with mobile computing we will basically always have a computer nearby. To the extent that free411 is needed, it will be voice based search function that Google or Microsoft provide.
• The price of Windows and Office get cut in half as a result of competitive pressure from Google.
• New York City becomes more relevant in the consumer web - there is less and less reason to build consumer Internet companies in Silicon Valley.  New York City’s abundance of media talent, smart ambitious people (particularly young ones), proximity to educational institutions, and dynamic diverse lifestyle options will – for the consumer Internet talent – give the valley a run for its money. If you were serious about the the consumer web in 2000, you had to be in Silicon Valley (not even San Francisco) because that’s where the engineers who could build your site were located.  The list of New York based consumer Internet companies and personalities continues to expand from a significant base. Naming just a few of the existing players around which the community builds.
  • Fred Wilson and Union Square Ventures - one of the most successful early stage Internet investors anywhere and a prolific blogger. Perhaps the best known VC blog anywhere, Fred has gotten his success the old fashioned way – he worked for it. He’s a real mensch to boot.
  • Chris Dixon and Hunch - with Flickr co-founder Caterina Fake, Chris is the co-founder of Hunch. He is an outspoken blogger and booster of the NYC startup community.
  • Google/DoubleClick
  • Etsy
  • IAC
  • Founders Club
  • MeetUp
  • DonorsChoose
  • Erik Schonfeld - TechCrunch
  • Old media – old media has finally started to understand the Internet and old media – what’s left of it anyway – is based in New York City. The historical east coast/west coast divide with technology understanding and know-how on the west coast and content on the east coast will go away with the east coast folks understanding technology as a distribution mechanism the same way they understood paper and printing press tech. It will have taken them 5 to 10 years longer than the west coast to get with the program but this is a long game.
  • New York Magazine – what magazine has done a better job getting online than NYmag.com?
  • Venture firms that focus on the space. It’s impossible to compete with the Valley on this one but New York is getting better though the financial activity in the city is still predominantly hedge funds and banks, not the early stage venture capital that is needed. A few of the larger and more active investors with a local presence:
    • Bain Capital Ventures
    • Union Square Ventures
    • Bessemer
    • Spark
    • Founder Collective

Theories abound about why entrepreneurs are able to capitalize on opportunities that incumbents miss. Here are a few of the better ones:

• Success breeds arrogance and arrogance breeds self satisfaction and a sense of invulnerability
• Incumbents don’t want to cannibalize an existing profit center with a new product that is disruptive. They bet on one in the hand vs two in the bush. The entrepreneur has none in the hand to lose.
• Incumbents tend to be larger companies and the incentive models and management structure of big companies tend to reward small incremental improvements to the status quo and place a high cost on taking large risks that have a small chance of being successful (but massive upside if they are).

To these excellent reasons I’ll add free time as one of the main competitive advantages that entrepreneurs have. Would be entrepreneurs – whether unemployed or working for someone else – have something that the CEO of an incumbent company does not have: a lot of free time with which to think very deeply while the incumbent is trying to beat last years numbers and keep the existing – potentially large – train on the tracks as their full time job.

Think of Bill Gates vs the Google founders. Gates was already running a massive – and very complicated business when the Google founders were crashing the Stanford network with the early versions of Google. Did Bill Gates lack for intellectual horsepower? financial resources? experience with the history of disruptive technology in business? competitive drive? Clearly not – rather, what he lacked was free time. His days were full of emails and meetings and the occasional offsite strategy session. How often did he get to step away from it all and clear his plate for weeks on end to let his mind roam and see new opportunities including those staring him in the face? He famously took a week or so off each year to seclude himself and read. Meanwhile, Larry and Sergei had the thoughtful – and relatively unhurried – life of grad students. With nothing else to distract them, they were able to focus all of their – rather significant – creative energies on just one thing: search. Not a couple of days or a week or even a quarter but rather years. Gates? He was busy with databases, email servers, MSN, multiple OSes etc. more than a full time job even for him. What is a wonder is not that Microsoft missed search but rather that with so many distractions they were so successful in so many businesses. (albeit, typically as a fast follower rather than innovator)

I’ve had a few such missed opportunities in my career – this one stands out: By the spring of 2003, I knew an awful lot about voice over IP (VoIP) – meaning transmitting phone calls on the Internet. Skype is pervasive today but in 2002 and 2003, making phone calls on the Internet was far from mainstream. Time flies in the world of technology so it’s easy to lose track but in 2002, even carrying a Blackberry was unusual. By early 2004 – using bleeding edge soft switches from Sonus Networks – I was running one of the larger VoIP phone switch installations in the US. During that same time, I was also buying early iPods – for myself and as gifts – and filling them with music, some of it downloaded off of the peer to peer networks that were not yet shut down. I had a Blackberry, a Friendster account and bought lots of things on Amazon, had been using a GUI since my dad bought a Mac in 1984 and the internet since 1993 (before that BBS). In short, I was, and had been for a while, a classic early adopter in addition to being an active entrepreneur.

And at that very same time, I also missed starting Skype – one of the biggest business successes of the past decade. While it’s unlikely I would have founded Skype even if I had not been preoccupied, it was not even a possibility. There was a point in time when founding Skype was possible and at that point in time, despite having the requisite skills with which to build the service, I had something more pressing to spend my time on – a full time job just keeping our existing business going and keeping the servers and switches up and running. So while I had everything that was needed to start Skype – I understood the Internet – both technically and as a long time consumer of it, I had a very clear sense of where broadband penetration was trending, and understood VoIP – the one thing I did not have was  time to step back from a full time job and look for other opportunities. I almost wish we had considered building something like Skype and had rejected it. Truth is, we never even had a week to think about the emerging consumer applications for VoIP. We continued to work very hard and built a nice business but we missed one of the biggest opportunities of the past ten years.

Of course, like all hindsight, it’s all clear in retrospect. And while it’s likely that even had we been looking, we still would have missed it, it’s also the case that like most already preoccupied people, we did not even have a moment to look.

I try to remember this now and find that vacations help tap into some of that entrepreneurial perspective. With the Blackberry mostly off (by choice), fresh air, friends, family and some time to decompress, it becomes a bit easier to see more broadly. But entrepreneurial perspective is unique and should be cherished. What’s perhaps counter intuitive to first time entrepreneurs is that as the business progresses you’ll actually become busier and busier. You’ll have customers to attend to, engineering problems to react to, emails to respond to, meetings to attend, conferences to speak at, potential employees to interview. When you are just getting started, those trappings of success sound utterly fantastic – and there is a lot that is great about them – but remember that the luxury of quiet will become ever more fleeting and with it one of the unique competitive advantages of entrepreneurs.

BTW, check out Mark Suster’s excellent blog about entrepreneurship and venture capital. He’s clearly very wise and he’s giving his advice away for free.

As a society, we already make choices about what kinds of work we want to incent and create all forms of financial incentives for our citizens to act in particular ways. We’ve created strong incentives encouraging home ownership and taking on debt by making mortgage interest tax deductible. We incent investment through special tax rates on investment profits (long term capital gains tax). Relative to other wealthy countries, we incent the consumption of gasoline and energy by keeping taxes on them low.

Wealthier people pay more taxes on their ordinary income and the debate on what percentage is right at what income level will rage on – almost certainly forever. But that issue pales in comparison to the societal decision to tax all salary and ordinary income equally. While implementing this effectively would by no means be simple, if even possible, there is a strong argument to be made for taxing a teacher, entrepreneur, doctor, trader etc differently.

We already make a large number of decisions about where we want our resources to go – the problem is that we are making the wrong ones. The US will not be a great country if our incentives tell us to take on debt, make our profits on speculation instead of innovation, and  consume energy without taking into account it’s true cost.

Several simple steps to start fixing our problems and reallocating our resources

• Board approved MDs pay no income tax for all income – investments, salary, etc –  under $200,000 per year
• Accredited teachers working as a teacher for any educational institution – public or private – pay no income tax on any income earned
• Anyone in the US military pays no income tax on all income up to $100,000 per year
• The cost of the US Military presence around the world is not factored into the cost of a gallon of gas at the pump.Take a percentage of what we spend on defense each year and charge it as a gas tax – the poor will be impacted by this more than rich so grant them an exemption to the tax.
• Dollars spent commuting on any form of public transit are tax deductible; HOV commuters don’t pay tolls
• Companies without profits and fewer than 100 employees or $10M/year in revenue don’t pay payroll taxes. Currently, an entrepreneurial company – such as Oyster - pays the same percentage payroll taxes that Proctor and Gamble pays
• Increase the short term capital gains tax – Profits made from (long term) stock market speculation are taxed at the same rate as profits made from investments by VCs in innovating startups where capital can often be locked for years, if not decades.
• Eliminate the mortgage interest tax deduction. Home ownership is not an intrinsically good idea. Some people are far better off renting.
• Warren Buffet and Bill Gates Sr. have it right – we should aggressively tax accumulated fortunes via estate and inheritance taxes. Fortunes made in the US were made off of the collective infrastructure that US society provides. Wealth should not be passed on from generation to generation as it grows. If we allow it to, we will have our own wealthy aristocracy in this country emulating what exists in Europe with all of its attendant problems.

I wish I had a good solution for it but capitalism has clearly run amock on Wall Street over the past few years and massive losses have had to be socialized while gains were previously (fall 2008) – and continue to be – privatized. As one of the investors (read taxpayers) coerced into being the investor of last resort to cover real losses incurred by a series of banks who had already taken personal bonuses on fake profits, it pains me that it was an investment made with no choice and now, no ROI. Even worse, at least emotionally, is that those same banks have since largely moved on – their balance sheets cleaned up by us – the sucker investor of last resort buying what they themselves termed as “toxic assets”.

As a group, these banks have more market power than they had before, are even bigger in the “too big to fail” math, and in a better position to make an arb off of the market as a whole. See the profits of GS this year. As investors, we took all the downside that was needed to make this possible but have received none of the upside. I still believe that Bernanke made the best call he could with the information available to him at that time and that for society as a whole, it was the right thing to do. But there is no doubt in my mind that there is something deeply problematic about the investors having bailed out the banks only to get no upside from it and that the banks are right back to their old games. What is to stop them from, once again, taking too much risk in order to make short term bonuses? The incentive structure they exist under clearly tells them they should. We the people are the ones left holding the bill if they can’t pay it and along the way, they take their cash off the table on the “profits” they make. There has been no claw back on the profits from the last go around. As a society should we claw back profits from bankers who made large profits that were actually false? Do we write special tax code that allows us to retroactively take back the bonuses that they “earned” during the boom times on investments that would end up providing to be the seed of taxpayer capital call?

But the meta point that I want to leave you with is that this is NOT about the common man on a mythical main street. This is not about populism. As the chart below reveals quite clearly, those of us who make more than 75,000 a year pay 86.6% of the taxes in the US. Those middle class and upper middle class people – the majority of them not in any way “rich” are footing the bill here. It’s lots and lots of college educated people living in our cities and paying big tax bills. People who have done well but don’t work on wall street. That group is paying society’s bills and that’s ok when the money goes into making a better country. But it’s deeply problematic when the place the money actually went was to fund a bankers Cristal party at a newly bought Hampton’s beach house. It’s not the “average person” who picked up most of that bill – it’s actually a small subset of people do well but not well enough to be rich and certainly not well enough to buy another man’s champagne.

So the question I have for our representatives – left or right – is what are they going to do to get us an ROI? That money for those beach front homes came from somewhere. In some cases it was earned – fair and square. But in some cases it came, not from real profits but from illusory ones fabricated on the backs of control departments in banks that could not care less that multi million dollar bonuses were being paid out on the promise of future profits that not only never came but rather produced massive losses instead.

Mint.com

1. Andy Sernovitz calls his the “Entrepreneurial lessons I wish I learned 10 years ago“
2. Bob Parson – founder of GoDaddy has his “16 rules for success in business and life…“

And inspirational lists like these are even better with a healthy dose of Kipling’s If layered on top:

IF you can keep your head when all about you

Are losing theirs and blaming it on you,

If you can trust yourself when all men doubt you,

But make allowance for their doubting too;

If you can wait and not be tired by waiting,

Or being lied about, don’t deal in lies,

Or being hated, don’t give way to hating,

And yet don’t look too good, nor talk too wise:

If you can dream – and not make dreams your master;

If you can think – and not make thoughts your aim;

If you can meet with Triumph and Disaster

And treat those two impostors just the same;

If you can bear to hear the truth you’ve spoken

Twisted by knaves to make a trap for fools,

Or watch the things you gave your life to, broken,

And stoop and build ‘em up with worn-out tools:

If you can make one heap of all your winnings

And risk it on one turn of pitch-and-toss,

And lose, and start again at your beginnings

And never breathe a word about your loss;

If you can force your heart and nerve and sinew

To serve your turn long after they are gone,

And so hold on when there is nothing in you

Except the Will which says to them: ‘Hold on!’

If you can talk with crowds and keep your virtue,

‘ Or walk with Kings – nor lose the common touch,

if neither foes nor loving friends can hurt you,

If all men count with you, but none too much;

If you can fill the unforgiving minute

With sixty seconds’ worth of distance run,

Yours is the Earth and everything that’s in it,

And – which is more – you’ll be a Man, my son!

“The best analogy I can think of is — have you ever heard of the Titanic Fallacy?” he asked. We hadn’t. “What was the critical flaw to the Titanic?” We tried to answer: Poor construction? Not enough life boats? Crashing into stuff? “A captain trying to set a world speed record through an iceberg field?” he said, shaking his head. “Even if the Titanic came in safely to New York Harbor, it was still doomed,” he said. “Twelve years earlier, two brothers invented the airplane.”

But with all of the innovation in the smartphone market, I’ve started to think about cheating on my Blackberry and maybe even leaving her altogether. Here’s my thinking:

• AT&T network – the iPhone has crushed the AT&T network. It was a good network a few years ago though with some bad holes in the coverage. Derivative from the iPhone, the massive growth in bandwidth demand on their network crushed the backhaul lines from the towers to their network core and made my AT&T Blackberry Bold less and less reliable. With the most recent BB OS release I’m now able to turn off 3G on the phone and so I’ve taken to locking the phone into EDGE; my reception stability and my call quality have improved noticeably and it’s more than tripled my battery life bc EDGE is so much more battery efficient than 3G – kudos to AT&T and BB for finally releasing that functionality on the Bold. That being said, even if I stick with a Blackberry, I probably have to leave AT&T.
• Blackberry internet browser - the BB browser is useless and not worth opening.
• Apps -
  • The BB has one great app and it’s email. It’s a really important app but these days I don’t really want to do long email on my phone and have started to use my Lenovo X301 laptop plus a Verizon EVDO card for any serious emailing. I can go far faster on a full size keyboard without destroying my fingers and nothing beats the resolution of a real monitor.
  • Other than email, there are not many apps on the BB and those that do exist tend to be pretty lousy. Apple learned from its 80’s mistakes with the Mac (I could not get a game – other than Sim City or Leisure Suit Larry – on the family mac to save my life) and has taken a great early lead in the app space. Interestingly, in a reversal of history, Microsoft has not done well in the app space; a terrible initial mobile OS is, however, a repeat of their terrible first GUI OSes on the PC (Win 3.1 was just downright terrible). 

The iPhone is beautiful and clearly people rave about it. But I don’t trust Apple hardware – it just fails too often and in a phone I need reliability. The lack of a keyboard is also basically a nonstarter; Everyone I’ve asked says that the touchscreen keyboard is something that they got used to but still don’t love. It’s adequate but nothing more. The lack of replaceable battery and the bad battery life intrinsic to any device on 3G makes the iPhone a nonstarter without even taking into account the AT&T network that I would have to remain on.

So I wandered into the Verizon store this afternoon and was greeted by no long lines, relatively little hype. the typical energy draining experience of any wireless store other than an Apple store and a beautiful Motorola Droid. I just may do it. The wireless business is not a complicated one – offer great phones (typically a weakness for Verizon) and a great network (typically a strength). Verizon and Google have a hit on their hands. It’s an impressive turn around for Motorola and for Google, it shows how seriously they are taking mobile computing. For them to be able to compete with the iPhone after only a couple of years in the cell phone business is incredibly impressive.

Your fees increased due to the FDIC Insurance now being passed on to clients… Your average monthly fee was around $45.00 and now that the FDIC insurance is included that will bring your fees up.

So here’s how the world works: Bankers borrow money from Greenspan at nearly no cost. They then “chase yield” and make relatively low priced high risk loans to people who have no documented income or job stability. They tranche up those loans because that “reduces risk” and anyway, everyone knows that home prices don’t go down. They then get one of the ratings agencies to rate the bonds (note that they pay the agencies to do this) and the bonds are then sold to someone else. The bankers who have packaged the bonds take enormous bonuses for “having made so much money for the bank” (obviously laughable in retrospect). Some of the dumber banks decide to get high on their own supply and buy a lot of these bonds for themselves. But shortly after the bonuses are paid, the banks then start to fail when it becomes clear that someone who was not willing provide employment or income info was, shockingly, not someone who was going to pay monthly mortgage payments.

To avoid depositors pulling their money out of the banks ala the depression, the FDIC bails the banks out. The FDIC though needs to get it’s money from somewhere so it charges new fees to the remaining banks – whether or not those banks did anything wrong (SVB did not play in CDOs). SVB is a business and so it does not want to increase its own costs without increasing its revenue. So the FDIC fees are passed on to Oyster and the other startups – startups that have raised high priced venture capital and are the small businesses that politicians – left and right – always mention as the job growth engine of America. The bankers and their bonuses – well, they get to keep those. No FDIC fees on those. I did not buy or sell any CDOs. I did not default on a mortgage. But I’m paying the bill and our employees – and the employees of countless other startups – are collectively paying the bill as well.

Similarly, we just started paying an additional payroll tax because New York State is financially disabled; the bankers who were fired by the banks are lost tax revenue for New York city and state – the rest of us who are left behind after the melt down are stuck with the bill. Wonder why people get upset about banker bonuses? Because the gains were privatized but the losses are being socialized. That’s not a model that can last. A just world has those who benefited from poor decisions taking the pain when the reality of their decisions is seen. Startups – and their investors – for example, live or die by their decisions. No one else picks up the pieces.  Either our current governors will fix it or we will need to throw the bums out and get someone who will.

• Ownership mentality - this applies to everyone in a startup, not just the engineers, but it’s incredibly critical in the engineers. Business people often look at engineers as mechanics and in return, they get what they expected – mechanics who will get the job done but won’t go the extra mile. When the servers crash at 3AM? Who will be there? A non technical exec or founder can get up in the middle of the night and stress but what is really needed are engineers with an ownership mentality. At Epana we were fortunate to have several people with this mentality. Without Jon, Marlena, and Eric we would not have survived through 2002 and 2003.
• They’ve worked in a startup before – This is true of most any discipline in a startup but is perhaps most acute in engineering. Startups have to make very hard engineering tradeoffs and shipping on time is not a matter of intellectual interest – it can mean life and death for the startup. Slip a few months at Microsoft? No big deal – Microsoft is printing a billion a month in cash.
• Consumer sensitivity - software engineering has many areas of intellectual interest: compilers, databases, and programming languages to name just a few. They are all  intellectually fascinating topics and a great software engineer ideally knows a fair amount about all of them as foundational knowledge. But consumer facing companies need engineers who care about consumers – not compilers. They may not be user interface experts but they have opinions about websites that make sense and they care about winning at business. Don’t forget to ask engineers questions about the product and the business. If their eyes glaze over, you’ve almost certainly got the wrong person – no matter how technically brilliant.
• Leverages existing technology - for really talented engineers, there is often the temptation to say “I can build that better than they can – and in a week”. Two problems here: 1) it’s never true that it takes a week and 2) even if it was (it’s not) what you end up with is going to be very hard to support and won’t progress with time unless the engineer – who should be busy working on technology that is truly differentiated – revisits it. Not invented here (NIH) syndrome is often particularly acute among the most talented engineers who want fun engineering problems to solve. If an engineer is more interested in complicated and fun problems to solve than they are in making products that customers want to use, run, don’t walk, them out of the building. Those kinds of engineering cultures are brutally insidious because the real problems – the “boring” ones that add business value – are assigned by the “talented” engineers to the “grunts” so that the hard cores can work on recreating the wheel.
• Build the technology that is truly differentiated and not available off the shelf - engineering resources are very limited so it’s critical to use those engineering hours to build things that really cannot be acquired elsewhere. My father – a research scientist at Northwestern – taught me many years ago that “an hour in the library can save a year in the lab”. It applies equally well in engineering – before building something that you need, make sure that you can’t get it off the shelf. At Oyster, Eytan – as well as Mike and Kevin – does a lot of our technical research.
• Great engineers create tremendous value - a big team does not necessarily equal a great team and since you don’t necessarily need a lot of engineers, reward those who you do need.
• Don’t hire egomaniacs or technical prima donnas’s - they may wow you with their brilliance or with their entrance into college at fifteen. But that ego will lead them to make bad and impractical decisions and unless you are reviewing their code, you won’t know the difference. Think they should have used an off the shelf load balancer? Yep – they thought they could build their own in a week. Never mind that the off the shelf one was built by, also brilliant, people who worked on it for years and years. Ego in an engineer is very dangerous. The lore of the engineer who can code it all themselves in several all nights is exactly that – lore. Yes – the most productive developers are vastly more productive than the average. But even they can’t build something maintainable, extensible, and scaleable  in a coding marathon week by themselves.
• Try to find engineers who have worked together before - this is not always possible but the interview process is imprecise – even with software engineers – and engineers who do well in interviews don’t always make for productive team members.
• Youth has its limits - Facebook’s engineering team has obviously done some incredible things and there was not a lot of experience there. That being said, try to have at least one engineer who has been around long term successful engineering projects. Smarts + experience complements smarts alone really nicely.
• Your lead engineer should code - this is particularly true in a startup where you almost certainly can’t afford a resource that is purely there for management. Being an engineering manager is a very real job and necessary job but at a startup management is not a full time jo. If you hire someone who can’t or won’t code productively, they will fill their time with unnecessary management infrastructure that, while it makes sense in a big org, is detrimental to the speed of a startup.
• Engineers don’t need to be managers to be rewarded – this is critical. There is no relationship between being a great engineer and being a great engineering manager. Don’t force your engineers to become managers to progress (in stature or in financial reward).

A special thanks to Mike and Kevin – the engineers most responsible for making Oyster what it is; each of them embodies all you could ever want in a startup engineer.

Now imagine you are the CMO of Ford and you go before your board and tell them that last year you spent $100M online (Google, etc.) and that the calculated ROI was 30%. Your board congratulates you and asks you to consider doubling the budget to $200M. You then go on to explain that you spent another $100M on ads in magazines. The board asks you what the ROI was and you say “well, I’m not really sure because it’s very hard to track a user who looks at a piece of dead wood that was sent to them in the mail (burning fossil fuels at each step in the process)”. Your board does the obvious thing and asks you if you can’t move the magazine ad budget to the Google ad budget. And therein is the future of the magazine business. A marketer/advertiser buying a product that cannot be tracked and measured for ROI is going to soon make as much sense as taking a ship instead of a plane to get to a business meeting in London.

So coming back to those CN web budgets. Granted, most of the web products at CN are not very good in the first place and CN has not exactly been attracting the best and brightest online media minds out there (AOL on the other hand…) so on the surface, there is probably a good argument to be made in cutting the parts of the business that CN is not winning at. Leaving aside the irony of talking about scrounging for web budget dollars at a company that recently built its own building, spent $100M on a failed magazine launch, and spends how many dollars each year on photos by Annie Leibowitz or on Anna Wintour’s wardrobe, cutting web budgets in 2009 is like drilling holes in the hull of the Titanic.

It’s hard for me to envision a scenario where CN is not in a doom loop from which it never escapes. Shortly, the likes of Tim Armstrong’s AOL will be pulling the best people out of CN and educating them about how to make money in online content. They won’t have big expense accounts for lunch, junior staffers won’t be staying at four and five star hotels while travelling on business (yes, that was the CN way), and their won’t be town cars waiting to take people home after work in a city with the best public transit system in the country. There will still be professionally done content worth consuming and many of NYC’s best media minds will still be doing what they do. But they will do  it at places like AOL and New York Magazine, not CN. The New York Times may yet find a way to be one of those places that produces a lot of that content. They’ve got a fantastic online product – to their credit, they’ve been trying to plug the holes in their ship, not drilling more.

As valuable as experience is, some of the cheapest learning you can buy can be acquired from books. In no particular order, here’s a short list of books that I’ve found useful over the years:

1. Working with emotional intelligence by Goleman – Business would be easy if it were not for the people. It all looks so simple in a financial model: “add revenue, reduce costs pull the auto-fill in Excel…”. Being good at the people side of the business is not an impediment to the job of a leader, it is the job.
2. Startup by Kaplan – great story about an entrepreneurial endeavor and about being WAY too early to a market (handheld computing). A real classic.
3. Fire in the Valley – a history of Silicon Valley.
4. Influence by Cialdini
5. Small Giants by Burlingham – All about companies that choose quality over volume.
6. The Snowball: Warren Buffet and the business of life by Schroeder. A fantastic book about Buffet, his life, and his approach to business and investing.
7. Will and Vision – an examination of why fast followers and market latecomers often end up winning.
8. Good to great by Collins. Several of the companies featured have gone from Good to Great to Bankrupt (Circuit City for example) but some of the core lessons of the book are still very valuable.
9. How to Advertise by Roman and Maas. It’s really more about marketing than it is about advertising. It’s a good high level introduction to marketing.
10. Building Strong Brands by Aaker. A good introduction to brand management and brand development.
11. When Genius Failed: The Rise and Fall of Long-Term Capital Management by Lowenstein. Beware geeks bearing black box algorithms that promise to yield high returns with little to no risk.
12. Pour Your Heart Into It by Schultz and Yang. Howard Schultz tells the story of going to Italy on vacation, seeing how Italians drink coffee, deciding that Americans could and should do it similarly and then buying a small Seattle coffee chain and turning it into an empire. He talks of both the visionary and practical elements required in building Starbucks over the years.
13. Fooled by Randomness by Taleb. Before the bubble burst and he became famous, he wrote this fantastic book about the role of luck in the markets and in life.

What books would you add to the list?

• Set VERY high goals, and then be willing to take unexpected pathways to get there. –Mark Pincus (CEO of Zynga)
• “First time entrepreneurs get first time VC’s – Mark Pincus
  • This is similar to the problem in a BigCo where the most junior employees are managed by the least experienced managers in the company. Add an inexperienced entrepreneur to an inexperienced VC and you don’t get good things to say the least.
• “Without a clear goal, you get death by a thousand compromises. You say ok to everything.” – Mark Pincus
  • It’s all about sequencing. It’s rare for a startup to be successful by only doing one thing. Since you can’t do it all at the same time, the critical challenge is sequencing. You’ve got to make hard decisions and invest not in those things that add value in the absolute but rather those things that add the MOST value; it’s a relative assessment, not an absolute one. (think comparative advantage)
• “Chase the vision, not the money.” – Tony Hsieh (CEO of Zappos)
  • Mercenaries run out of steam during the marathon. Missionaries truly believe in making something great and don’t take advice that gets in the way of that.
• “Whatever you’re thinking, think bigger.” – Tony Hsieh
  • Zappos could have, after all, just been a small online shoe store. There are lots of those.
• “Not all investors are created equal. Some are much more aligned with the entrepreneur.” Mitch Kapor
  • And some are much better at it than others. Also, don’t get fooled by the brand name of the firm – it’s the individual you are working with that matters as VC is an individual contributor business (with rare exceptions). It’s not the only variable that matters but if you can, find an investor who has been an operator or entrepreneur before being an investor. That being said, many entrepreneurs make very bad investors.
• “Take more risk, move faster, be more open and have more dialog inside of the company.” Mark Zuckerberg
  • Very often you can’t learn whether something will work without trying.
• Saying at Facebook: “The biggest risk you can take is to take no risk.” Mark Zuckerberg
  • Similarly, no decision is a decision.
• “A lot of the best stuff that we’ve done is tried not to take all the advice from other people.” Mark Zuckerberg
  • This is incredibly true. Advice is cheap and easy to give and is most dangerous when it’s given by someone who you want to impress or please and who gives the advice to you with great conviction (independent of how deeply they’ve thought about the problem). What BigCo often suffers most from is consensus building which yields mean regression. Why are Apple’s products great? Because Steve Jobs makes sure they are. They are not built by committee. If you take all the advice you get, you will inevitably end up with a product built by the dumbest person (or the one who has thought about the problem the least) in the room.
  • Have a vision and thesis and stick to it. Adapt and change not when you get advice from so called experts but rather based on customer feedback. Pleasing customers (who pay you for doing so) is the only thing that matters.
• “Eventually you get judged not by how things look, but the value you provide to people.” Mark Zuckerberg
  • If you don’t create value, you don’t get rewarded. Be wary of people offering simpler or faster solutions no matter evidence they claim to bear.
• “Investors are employees you can never fire”
  • Not sure who said this (might have been Biz Stone of Twitter) but it’s fantastic and incredibly true. Raising VC money is not about them approving of you and giving you money – it’s about your being sure that you are getting money that will help – or not get in the way of – you execute on your vision.
• “toxic to think that when you’re done with school, you’re done learning” – Paul Buchheit (creator of Gmail – Founder of Friendfeed (bought by Facebook))

That being said, getting into the entrepreneurial life style is far easier when you are young and the way to become an experienced entrepreneurial person is to start early as an inexperienced one and then add 10,000 hours of hard work. You might not be successful before you are 30 but if you really love entrepreneurial endeavors, you’ll likely have had a lot of fun while  building a vast base of knowledge off of which to leverage in the coming years. The early years of entrepreneurship are not necessarily going to be years during which you get rich but just like a doctor has to put in their time in med school, residencies and fellowships before they become that world class neurosurgeon, the same is true for entrepreneurs.

And no, you can’t really get this experience working in a BigCo. The challenges of business in a BigCo are very different from the challenges of an early stage startup. If you want to be a great at entrepreneurship, you want to spend as much time as possible in the weeds of building startups. That being said, if you are going to choose between working in consulting or banking vs working at a BigCo product company like Google, Microsoft, Adobe or the like, it’s not even a decision.

This is even more true on the Internet because distribution is available to everyone. If you’ve got a widget that you want to sell via Walmart, selling to Walmart is a skill you have to have before your customers can buy your product at Walmart. No matter how good your product, if Walmart won’t carry it, you won’t sell any at Walmart. The Internet is virtuous in that it’s easy for customers to find the best product and because it makes it easier for customers to tell each other how much they love your product; email, forums, marketing in search engines, Facebook, Twitter, IM, etc all dramatically lower the cost of getting the word out, Also, if your product is great, your customers do a lot of the work for you. They link to you (drives your success in Google), they email their friends and family (the level of engagement we get on Oyster from customers clicking on a link in email is awesome), they post your product to Facebook and they tweet about you. Three of those channels did not even exist ten years ago. Arguably they were not even all that relevant as recently as 5 years ago because the Internet was not yet fully a mainstream consumer experience and was instead more focused on early adopters (techies). The best part of all this? No going to Walmart to get them to carry your product. No slotting fees (paying a retailer to put you on the shelf), no Walmart buying cycles to contend with: “we can’t carry your product until we are past our pre-Christmas rush and have more bandwidth to deal with a new product”.

Building a great product is not everything but it’s a huge part of it and in most businesses it’s gating. The execution parts of a business are critical but if you have a great product, it makes it far easier to hire great people who know how to do the execution parts really well. It’s far easier for Apple to find a great retail executive when that executive gets to sell Apple products. Great people want to be around great product and other great people.

Along these lines, here is a great quote from the Sequoia Capital website. With an approach like this, it’s not that surprising that they’ve had the success they’ve had (Google, Cisco, and Kayak just to name a few):

Sequoia Capital in the U.S. caters to the founders and management who have selected us as their business partners. We have learned that the only way to help develop a fabulous company is one step at a time. This only happens if the company makes wonderful products or delivers a service that thrills large numbers of customers. If that occurs then founders, management and employees of these companies prosper. It is only then that the investor deserves to be rewarded. It has to happen in that order. There are no shortcuts.

The thing they don’t really teach you in business school is that a huge percentage of what you need to know to win at an entrepreneurial endeavor are things that you absolutely cannot know from the research you do on Google during your spare time. A lot of what you need to know to be successful, you don’t – and can’t – know before you are actually trying to make your thesis (idea) work. For example, it’s very hard to get real user feedback on a product without actually showing them the product in a scenario that closely approximates real life. Describing the product concept on a white board is not nearly as useful as seeing real customers using your product – or not using it – in real life. And no, focus groups won’t solve this. Save your money.

You also can’t really show your customers a half baked product that you built in your spare time and expect that what you learn there will tell you whether or not you can now safely quit your job. If you’ve built something bad, it’s likely because you did not put enough time into it in the first place; that pesky full time job again interfering with your being fully creative on the product. If your customers kind of like your product, you won’t be able to actually make use of their feedback effectively and rapidly if you have other work commitments. And you almost certainly won’t have enough data from that first interaction with your customers to know whether you now have hit the home run so it’s safe to quit your job and get in the game. That’s not the way startups work. Success is not what happens to you – it’s what you make happen.

The way you derisk a startup is by having a good thesis to start, doing a lot of work to validate your thesis, learning constantly, improving constantly and doing it again and again over a long period of time. Innovate (it starts here – your customers won’t do this for you), get feedback, stop doing the things that are not working, do more of what is, add in a small number of new unproven things, repeat. and again. and again. You get the point.

• Do you need a VC? this is probably the biggest decision you will ever make. It’s a marriage from which you cannot get divorced. It’s not a loan - even though the preferred stock typically has a dividend accruing on it – so you can’t ever pay the money back. Raising equity is not an accomplishment – all it means is that you sold a piece of your company to someone else. The accomplishment is what you do with the money you raised by selling off a piece of your company.  There are businesses that should never raise VC money. Ever. There are also businesses that while good businesses, will almost certainly not be able to raise VC money. That does not mean that the entrepreneur is not talented or that the company in question is not valuable – it just  speaks to the nature of the VC business.
• Value add or just money at the best price possible - some VCs – like Kleiner Perkins – have built incredibly powerful firm brands. The brand, in turn, attracts entrepreneurs looking for the success halo that the firm brings. Since the firm has broad access to a lot of very talented entrepreneurs (often called “deal flow”), they have many options to pick from. Does a great VC firm make entrepreneurs successful or is a great VC firm successful because it found a way – typically brand developed because of an early successful investment – to attract great entrepreneurs through the power of their brand? Either way, if you are choosing a firm based on value add, be sure to assess what the real value add is. Brand is a form of value add but is not the only kind of value add there is. I personally start with the point of view that at it’s core, the reason VC exists is to allocate capital properly to people who will be successful independent of any post investment value add the VC might bring. The role of the VC is the money they bring you – carefully allocated money. For a company to be successful, everyone in it has to do their part and specialize on doing their part well; the part a VCC needs to do better than anything else is invest money with the right entrepreneurs pursuing the right opportunity. Anything beyond that is a bonus. There are investors that add value by being great board members and advisers but like greatness in any field, they are the exception rather than the rule and that’s ok. As I learned from an investor I respect and trust, “First, do no harm”

To be continued… other thoughts will include:

• Do your diligence – reference check
• See what your options are
• Get to know them
• Contracts are always about when things go bad – you rarely, if ever, look at them when things going well.

PS - unrelated aside –  if you use a Blackberry, Bolt is a far better blackberry browser.

I did some data center math and assuming that they are keeping a year of logging data (they are likely keeping far more), they need at least 70 racks of servers just to handle the storage of a years worth of logs. For my math, I assumed 4 servers of 24 hard disks per server per rack using 2TB disks and assumed some form of RAID; given the size of the individual disks, they have to use RAID 6 or 60 or something similar to protect against data losses as a result of disk failure. Even these numbers may be far too low. Western Digital’s RE4 enterprise level 2TB drive is quite new so if you change the assumption to the widely available 1TB drives and also change the assumption of 3 servers/rack, you end up with a number of more like 200 racks just for log data – assuming the logs are stored on hard drives. Since all of Oyster.com takes well under one rack, the Facebook numbers are mind bending.

Why is Free not free?

Despite the oddity of the editor of a money losing magazine continuing to offer overly simplistic theories about business, what is even more interesting is that Anderson’s latest book Free is not, in fact, free. Why is a book about how content wants to be free, for sale at Amazon for $21.59? Malcolm Gladwell did a nice job of tearing Anderson’s book to shreds and it’s hard to add much to that here but Gladwell failed to ask Anderson the simplest question of all: if you believe your own theory, why are you selling your book for money?

Why is Yahoo, an Internet media company, advertising on NYC bus stops?

It’s truly odd that Yahoo, a company that makes its money selling  trackable and measurable impressions on the web has chosen to forsake the uniquely measurable nature of the very advertising it sells its own customers for the side of a NYC bus stop. Yahoo! would no doubt argue that it’s commonplace for media companies to advertise in other media (it is – I’d guess that TV shows are one of the biggest buyers of NYC bus advertising) but it’s just too strange when one of the best known brands on the Internet chooses to spend its own dollars not on innovation and not on online advertising but on billboards and bus stands. Money would have to become extraordinarily cheap before I’d advertise an online product offline.

The job description is below and also viewable here

Fast-growing, Well captitalized startup looking for C/C++ developers

at Oyster Hotel Reviews

New York, NY 10011

Oyster Hotel Reviews — a fast-growing and well-capitalized start-up seeks extremely talented C/C++ developers to help revolutionize travel planning on the Internet. You must have
experience designing and building large and complex (yet maintainable) systems, and you should be able to do so much faster than most competent people think possible. You should have a BS, MS, or PhD in Computer Science or the equivalent. Top-notch communication skills are essential. Familiarity with web development would be helpful, but is not necessary.

Oyster’s management includes Microsoft alumnus Eytan Seidman – formerly Director of Core Relevance on Live Search (now Bing.com) – and two highly accomplished serial entrepreneurs, Ariel Charytan and Elie Seidman. Our engineering team includes members who architected and scaled Microsoft’s search engine between 2003 and late 2007. They hold computer science degrees from Cornell University, University of Pennsylvania and Harvard.

We launched recently and have been written about in the New York Times, Wall Street Journal, LA Times, Economist, USA Today and many others. You can read recent press the company has received here: http://www.oyster.com/about/in-the-news/

Requirements
• BS or MS degree or higher in Computer Science
• 3+ years of professional development experience in either C/C++ is a must.
• Experience in database programming
• Experience with web development
• Interest in working with other disciplines including customers (end users of the software you write) and product management
• Permanent legal right to work in the US

What we offer:
• 30” monitors and the best computers money can buy
• Full health care benefits
• Meaningful Equity/ Stock Options in a startup with a very bright future
• Friendly coworkers who are the best in their respective fields.
• Amazing server infrastructure with which you can do very unique things (details in the interview)

How to Apply:
Please submit your resume to jobs@oyster.com with “C++ Software Engineer” in the subject.

Interested?

jobs@oyster.com

I’m 35 and have been using the internet – in it’s various forms – since 1992, earlier if you count BBS. I’ve used email extensively since entering college. Email was then – and continues to be now – the medium I am most dependent on day in and day out. It has – by far – the best signal to noise ratio. Even though I selectively follow a small group of people – my Twitter feed is overwhelmingly noisy to the point where many days it’s not usable. My Facebook feed is far better but still nowhere near as relevant as email is.

Email is in no way dead. Once upon a time, people were saying that email would be killed off by IM. That did not happen. Email won’t be killed off by Twitter or Facebook. They are different mediums with different roles. Email will continue to be the most high value (low noise) medium we have other than face to face or phone communications. Remember the RSS craze? Remember Pointcast? Yep – didn’t think so.

It’s easy to criticize the decisions of others from the outside so I’ll give Bartz the benefit of the doubt and assume that relative to all of the other ways she could have spent the money – be it on innovation on existing products, creating new products, creating bonuses for innovation among employees, buying new products that Yahoo! could leverage it’s massive brand and distribution over – this was the most appealing.

That Monday morning quarterback disclaimer out of the way, spending money on ads is one of the easiest ways there is to spend money if you are a big company with – for now – cash in the bank. Innovation is a slow process under the best of circumstances and these are not the best of days at Yahoo! But pulling out your checkbook to buy masses of media for quickly created ads only involves the stroke of a pen or the email to the treasurer to send the wire. It’s fast and it’s easy. Effective? Well, that depends if the product is any good. And with the exception of certain Yahoo! verticals like finance, the product has stagnated and is getting worse not better.

Caveats aside, I don’t need to know what Bartz does to know that this is a confusing and bad ad campaign. What on earth does it mean that the Internet is mine?

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• Yahoo should invest in products, not advertising (cdixon.org)
• Yahoo’s $100 Million Ad Campaign: It’s You! (readwriteweb.com)

Now the most anti-tech camera brand of them all – Leica – has gone tech (they actually went digital with the uninteresting M8 released a couple of years ago) and they’ve finally produced a product worth talking about if not necessarily worth the price of admission. The Leica M9 is both Leica purist and modern digital camera aficionado heaven.

o

Leica M9

Here’s the summary:

• 18MP full frame sensor with no anti aliasing filter – sensor made by Kodak in the USA
• Can use any Leica lens ever made – as well other M mount lenses from the likes of Zeiss
• Small and light – easy to carry all day
• Looks like it was designed in a bygone era – does not attract attention to the photographer the way a large digital SLR does
• Exquisite attention to detail in design and manufacturing
• Built like a tank – you can break one but it won’t be esay
• Outrageously expensive – like all Leica’s are
• It’s a rangefinder – no autofocus
• Two full reviews are here
  • DPReview
  • Ken Rockwell Leica M9 review

But at the end of the day, photography is not about gear. In an interesting parallel to business success – photography is about being in the right place at the right time and then getting lucky. You have to put in the effort to be in the right place at the right time with the right set of skills – and some baseline level of gear – and then also get lucky. Alone,  luck and great gear don’t do anything for you.

A Leica is a truly beautiful object and I wan’t one badly but as Briana R. shows here in her photo of Hotel Hana Maui what matters more than gear is being willing to get up at the crack of dawn and wait for the right opportunity. She made her own luck and also got a little bit lucky (never turn lady luck away) when the light was just right.

Infinity pool at the Hotel Hana, Maui

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• Leica comes clean, announces the M9 and X1 (crunchgear.com)
• Leica Debuts 18-Megapixel Full-Frame M9 Rangefinder, X1 Compact for “Beginners” [Cameras] (gizmodo.com)
• The Leica M9, one for the marketing textbooks (blogs.law.harvard.edu)
• “…don’t take my Kodachrome away.” (flickr.net)
• Leica: cameras worth buying? (doonster.blogspot.com)

• Getting the flywheel spinning – great companies are built by the marathon effort of being excellent every day and improving every day
• Get the right people on the bus - businesses are only as good as their people and the will to win those people have.

But as Chris Dixon points out in his excellent post today, you can’t just read the Collins books (or any other book for that matter) and become one of the truly great. Why? Because the part that Collins can’t sell you is insight and intuition. No book, focus group, spreadsheet or research study replaces the unique genius that is the insight to see what the future holds – to bring customers what you know they will want, not what they know to ask for.

As Chris mentions, one of the companies featured in Built to Last is Circuit City – a company that is now bankrupt. Circuit City was likely quite good at running an offline electronics retailer. But that turned out to be a skill of increasingly limited value. Along came the Internet, pervasive PCs, Amazon, Fed-Ex (inexpensive 2 day shipping), easy price comparison, and there went their business. Amazon is worth $41 billion and growing and the Circuit City store at 80th and Broadway in Manhattan has a store for-rent sign in the window.

As evidenced by the layoffs at Conde Nast (CN) this past week, the magazine business is facing the same problem. In a world of targeted and trackable marketing and distribution of content via servers and electrons on fiber, CN is a business built on untrackable generalized impressions in magazines, printing presses, trucks, paper stock decisions, and multi hundred thousand dollar photo shoots for covers. How long is it before the Conde Nast building at 4 Times Square has its own for rent sign in the window? It’s not a foregone conclusion that it will happen but it will take some aggressive changes on the part of an organization that has become wedded to a defunct business model to right a listing ship. The future of Conde Nast is far less Anna Wintour and Graydon Carter and far more Nick Denton – if not necessarily in the type and nature of content being produced (I enjoy VF), then certainly in the approach to management and strategy. But it won’t happen by cost cutting the old business model alone – as a board member of a prior company said to me once – “you can’t heat your house by burning the shingles off the roof”. No amount of cost cutting will save Conde Nast – instead they have to figure out a new way to exist and grow in a world that has changed. As Ariel said to me a few days ago “no amount of cost cutting would have saved the steam engine lines (boats) – they needed to learn how to fly planes instead”.

Of course, seeing the future is not enough – you also have to be able to create it as well. Saying “we should build a cool looking phone that surfs the internet well” is not useful unless you can also design it, build it, manufacture it, market it, etc. Vision without execution only ends with great grandkids saying “my grandfather should have bought Manhattan when it cost a dollar”. That’s where Collin’s books can be useful. But as Chris says, life is not fair – not everyone has insight and insight is what truly separates.

Ariel, my longtime business partner and Oyster co-founder, has often made similar comments to me. No matter what happens — and not all business endeavors end in success — the path of creating something from nothing is a truly unique one, and the experiences and feelings of accomplishment that you get from it are uniquely special and uniquely your own. And this is true not just for the founders an entrepreneurial endeavor, but for all the participants in an innovative business, who also get the satisfaction of knowing they helped build something that did not exist before and changed the world in some way, however small.

For me this is all closely related to the idea of enjoying the journey. Selling a company is no doubt a euphoric end to an entrepreneurial journey, but passing that final milestone is in many ways a fleeting experience. Much more important is being able to enjoy the path along the way. If a startup is only about the goals, it will never be enough fun to sustain you through all the hard work required to make it a success. The journey is the part that can never be taken away from you – learning to treasure the path is critical.

Mint CEO Aaron Patzer on Startups from Techcrunch on Vimeo.

So he refreshed my memory on the history of his company. He’s now making real money from the business, which I was glad to hear. But what really struck me was the fact that he’d now been at it for nearly a decade and had changed product direction three times along the way. When the first product was not what the market wanted, instead of closing up shop, he changed to a second. The second product was a closer fit but as soon as he developed some traction in the market the market evolved — now everyone wants “software as a service” as the deployment model instead of the traditional “sell a server” enterprise software model.

And so he’s off and running yet again, moving his product to give the market what it wants. While he has not yet become a huge success, he’s staying in the game (a game that only ends when you quit). He’s not on the cover of Fortune but he’s making a living — albeit a small one — enjoying his work, and keeping open the potential to really hit it. His photo should be in the dictionary under persistence.

The broader point is that success is not an overnight thing when building a business. We often read about a successful company in the business press and think to ourselves, “Wow, they really did that fast.” But look at the details and you’ll see that what appears to have been an overnight success took years, if not decades, to build. In fact, it’s hard to think of any examples of businesses that were built in quarters or even in a year or two. YouTube is perhaps the most notable example of a big rapid flip, but that’s the exception that proves the rule – particularly given that the company never made a dime before it was sold and since having been bought by Google for a huge price continues to hemorrhage money.

Business building is a marathon, not a sprint. It’s not about creating a cool product and launching it and then hoping it takes off so that you can sell it quickly. (”Flip” is the term that’s often used to describe those kinds of companies and one I really hate.) It’s about being great day in and day out for long periods of times. It’s about both being visionary about what the market needs and being adaptable to adapt your vision to what the market is saying it wants. It’s why, when entrepreneurs looking for angel financing say to me “I want to do X and Y over the next 18 months and flip it to Z,” I always call them on it. It really never works that way. The number of overnight success stories that happen in a year or two is incredibly small. Far more likely are the “overnight” successes that took five years — and infinitely more likely are those that took ten years. The good news is that if you build your company to last, it almost certainly will last long enough to thrive. You won’t be rich after nine months – but if the only reason you are doing it is to get rich, you probably won’t and should probably give up now. Do it to have fun and because you have a need to build something you are proud of. And give yourself enough time to be successful.

Learning computer science at the introductory level is often less about learning how to program a certain type of program (though that can be a lot of fun and is certain to be a part of any course you take) and more about learning an interesting, valuable and important method of thought and problem solving. Unlike my Oyster Co-Founder Eytan, I did not major in CS in college but I took a couple of CS courses; I still regret that despite our having a computer at home from 1984 on, I was not pushed more to learn how to program and my first programming experience was only in college in 1993. In my college classes I was by no means a great programmer – the great ones are often 10x better than the average programmers like me – but the problem solving approaches I learned in those hours in the CS lab have stayed with me since then.  Nearly anyone can make it through an introductory CS class even if it’s a struggle. Even if you are not a “math and science person”, the investment in learning the basics of CS is well worth it. I’m very confident that I’m a better businessperson as a result of having learned the basics of CS and recommend it strongly to anyone who is interested in bettering themselves. If you are not in college or high school anymore, it’s not too late. You can take a course at night school at a local university or teach yourself using a book. You’ll have to go elsewhere for an up to date recommendation for a specific book but my, perhaps dated, recommendation is Kernigan and Ritchie’s small book. It’s a great book thought perhaps not the best way to learn Computer Science concepts (note that learning CS concepts is different from learning how to program in a particular language). Unless your planning on actually programming for a living (or for fun), a more conceptual approach to CS is likely to serve you better than a “learn how to program in 10 days” type of how to guide.

One of these seemed particularly interesting because the drift of our conversation went so against a piece of conventional wisdom currently circulating in the (techy) startup world. It concerns the notion of first impressions. Over the past several years many startup experts have advocated a rapid release and iteration model. The thinking goes that, because the cost of hardware and software has come down so dramatically relative to the first Internet bubble in the late 90s, it’s now possible, and makes sense to get a good-enough but relatively inexpensive product out the door and into the hands of customers — who can then try it out and tell you what you are doing right and wrong. On paper it sounds like a good concept even — though it’s very hard to find any meaningful successes that were built this way — after all, wasn’t Facebook created in a dorm room at Harvard with a tiny amount of money and put out in an embryonic form that has evolved over the years?

That logic, however, has a major flaw – one that may not be immediately apparent.

Let’s assume that you are not lucky enough to be Facebook or YouTube (most are not) and have your idea grab hold quickly, which rarely happens. So you’ve now released your admittedly imperfect, perhaps even bad, product early and Tech Crunch and a few other bloggers have written about you. Maybe they didn’t say anything particularly terrible about you; but they probably didn’t say anything great about you either. The blog attention probably gets you some early adopter users — folks who basically test everything because they take great pride at being “in the know.” So they come to your site, see your bad product, and leave – forever. And now your novelty factor is gone forever, too. You’ve launched early and rapidly but for what?

Avi’s experience in the restaurant business makes this point even more clearly.  In New York City, at least, the only press a restaurateur can realistically hope for comes within a few weeks of opening the doors, plus perhaps when something goes seriously wrong – the chef leaves, the place burns down, or it goes out of business. Sure, you’re likely to get some great feedback from that initial rush of criticism. But if you fail to generate at least a certain amount of positive buzz, you may not survive to fix the problems that surface. And that’s the restaurant business where the problem that is being solved – food to eat – is a known concept, both to the chef and the customers; many startups are not operating on such a well defined playing field so it’s harder for their customers to give them useful feedback.

What’s more, it’s easy to overstate the quantity and quality of the feedback you’ll get. Keep in mind that it’s far easier for critics to say “I don’t like it” than it is for them to identify and articulate what you need to do to be successful and that will be the majority of the feedback you get (and you won’t get that much feedback in the first place, by the way). Most disappointed customers won’t say a thing – they’ll visit your restaurant once or your web site for 30 seconds and leave, never to be heard from again. Now what? Well, now you have a very big problem and this is where most startups go to die. They did not come out with a strong enough product to get their first customers to love them. Your customers cannot and will not do your innovation work for you. If it takes you 3 months to build something amazing – lucky you. But it may take you 9 months or a year or two. However long it takes, you are almost certainly better served by coming out of the gate with something impressive. It does not have to be perfect – there is no such thing really. But it does need to be differentiated enough that your first customers notice.

The fact is, your first customers are your hardest customers to acquire. So you need to ask yourself some hard questions before launching your business: Will it wow them? Will a percentage of your initial customers recommend it to someone else? Did it make a strong enough impression that they next time they need your product – whether it’s a restaurant or a website – your company will quickly come to mind? If it won’t, are you launching because you’ve been told by “smart people” to launch quickly or because you have a strategy to deal with the post launch fall off?

Oh, and Blue Elm is great. It’s not perfect but Chef Malik knows how to cook and at the end of the day, the most important product in a restaurant is the food. Restaurants with good food – at a price that is within the realm of reasonable – don’t go out of business. People need to eat after all.

I have yet to meet a successful entrepreneur who is not confident in his own ability to out-execute and out-innovate the competition; and usually they’ve earned that confidence. Our aspiring rancher says to herself “How hard could that be? I’m sure I could do it well” — and may well be right. So should she? Keep in mind that this type of “opportunity” comes up many times a year, and that the bigger the existing business, the more opportunities are likely to present themselves.

I’ve faced this many times over the years and continue to face it now. The temptation to go and win at something new can be a powerful one. Like many entrepreneurs, I’m competitive and ambitious, and I find winning at something new deeply enjoyable. I even find the challenge, the stress, and the hard work deeply enjoyable. And yet the vast majority of these opportunities should be skipped. Why? Because of the concept of comparative advantage, which we were all taught in freshman econ. Even if it’s less momentarily invigorating than going off and starting the new new thing, and even if you could win in the new endeavor, the place to focus is the place where you have the greatest comparative advantage — the most differentiation.

So if you’ve got a good thing going, restrain yourself from chasing the new thing. Instead, double down on your existing winner and do more of it. Find a market where you are truly differentiated and then work hard to extend your lead. If you look hard, you’ll find an incredible amount of opportunity for innovation within what you are already doing. It almost certainly won’t be “big thing”  of business page headlines but rather the small things which make the existing product superlative. You don’t want to lose the creative energy but channeling it so that it’s effective is critical. A good example of this is the way that Amazon, despite its size, returns customer service emails faster than anyone else? That’s not an accident; instead it’s the result of someone dedicating themselves to innovating on email customer service.

Over the years, I’ve given 100+ pitches to raise money and, as both a Venture Partner at a private equity (PE) fund and as an angel investor, have been pitched 100s of times. I’d guess that in 95% of the pitches I’ve received, the entrepreneur or executive forgets to start the pitch with the most fundamental thing of all: the problem they are trying to solve and whether or not people have (already) shown a tendency to pay for having that problem solved.

As an entrepreneur, you become very close to your business concept and product or service. You live it and breathe it day  in and day out and it becomes a part of you to the point where you take for granted that it’s a major part of the universe. But the challenge that marketers have – and as a fundraiser, you are a marketer – is to remember that their audience does not think about that product 24/7. If you work for P&G and are marketing toothpaste, you have to develop marketing content that works on customers who don’t think about toothpaste for a living. If you are selling stock in your startup to an investor, remember that they don’t think about your business or the market you are in 24/7.

Even the most well-intentioned VC or angel might not have gotten a chance to read over your pitch before you arrive (there are pros and cons to sending one in advance – most of the time you won’t have gotten to a meeting without sending one). Even if they are a specialist on your market area (there are real advantages to pitching investors who specialize), they still won’t have all the context that you have  in your head.

Before rattling through ten slides about your execution to date, your latest press, what analysts say about the “hotness of the market,” the market background, competitors, and your personal history (there is an important exception on this one), spend two minutes to tell them what problem you believe is desperately in need of being solved. So desperate in fact that you’ve committed your time, energy and money to bringing this new solution to the world. Particularly for products sold to consumers, if the VC does not believe in the fundamental consumer insight you have (the problem you are trying to solve), there won’t be much to talk about. Guy Kawasaki has a good PowerPoint outline here.

The main caveat to all of this is that if you’re already an incredibly accomplished executive, product manager, or entrepreneur, start the pitch by telling the investor what you’ve already done. Don’t presume that the investor has done a lot of research on you in advance. They might have but don’t assume it. Whether knowingly or not, we always contextualize what we hear with who we are hearing it from. The receptivity of the potential investor to your pitch will vary a lot by what you’ve done before. If you are not particularly accomplished – yet – but have a great idea, then lead with your strong suit – the idea. And never ever lead with “my board of advisors is” – ninety-nine times out of one hundred it’s tacky and lacking substance and is the equivalent of name dropping the stars you saw on Rodeo Drive on your last trip to L.A. If Steve Jobs is personally reviewing your product decisions because he is your uncle, then by all means mention it. But unless that Board of Advisor member is very close to your business AND has invested a lot of money in it, don’t waste your time talking about it. More about Boards of Advisors in a later post.

It’s a stretch to mention Buffet and Dreier in the same post but I’m also reading the fascinating – though long – book “The Snowball” about Buffet. What’s interesting is that despite endless amounts of money, Buffet has really not spent much money at all on material things. He, rather famously, still lives in the same house he bought decades ago. The one expensive thing he has bought is a private jet which is really his buying time or said another way, buying experience. Spending money is a deeply personal decision but my experience has been that spending money to make experiences and memories is far more satisfying than using money to buy unnecessary possessions.

Board members have tremendous power over the company on whose board they sit. Since CEOs report to their boards, and the boards control the CEOs’ job security, CEOs want to please their boards. So if a board member asks for something, the CEO is naturally inclined to see that it gets done, sometimes  against their better judgment. So, for example, “Maybe we should look into outsourcing X” can rapidly become internal marching orders — even if the board member only dreamed up the idea that morning or prior research done by company’s employees already dismissed the idea.

I recently asked a VC I respect – a former executive — about his approach when sitting on boards. It’s evolved over time, he told me. “It took me a little while to realize that my ability to do harm far outweighs my ability to do good,” he says. “And that I have to speak very, very carefully.”

A VC might sit on the board of as many as 10 to 12 companies, which often have little or nothing in common with each other. Assuming that those boards meet four times a year, that’s forty board meetings a year; then there’s the time he spends finding the next investment opportunity. In other words, not even the most diligent and focused VC is spending more than a fraction of his time on any single company strategy.

By contrast, the executives, founders, and entrepreneurs on whose board the VC sits think about that one company day in and day out – typically 350-plus days per year. (Do you know any successful entrepreneurs who don’t work weekends? Me neither.) Assuming that the entrepreneur is smart — VCs generally avoid investing in clueless entrepreneurs —  it’s going to be very, very hard for the average VC to come up with good ideas that nobody else has considered. Sure, VCs do a valuable service by bringing their outsider perspectives to the board meetings – but outside perspectives have built-in limitations. (If the VC finds that he is frequently adding a lot of value at board meetings, he should probably ask himself if it’s because he’s really smart or because the management team is clueless.)

Given that context, a good rule of thumb for any director in a small, closely-held, company should be: “First, do no harm.” This is more true when the VC(s) is the control shareholder but still important when the founders/management have control. Even if your legal docs make VC member suggestions and nothing more, it’s not always easy to tell people you respect that you don’t think their ideas have merit.

The problem is further compounded because the tech/startup press writes about fundings as if they are an accomplishment onto themselves and the press often celebrates those companies that have raised a lot of money. The reason for this is because the press needs news and fundraising stories are current news – it’s not the journalist problem 3 years down the road that the company has not made any money with the money raised.

If you don’t use that money to make a lot of money – you don’t ever build value. And when the money raised is equity – as it always is with VC money – it’s money that is on your balance sheet forever – you can’t ever pay it back and have it out of your life. You are married to the VC with no chance for divorce even if the VC firm dies as many VC firms are doing and will continue to do. (Picking your VC carefully is a topic for another post…) As my business partner Ariel says “mid-term valuations used in private financings, if not based on a multiple of income, FCF, or EBITDA are simply the lies everyone tells themselves. The only thing that matters is whether you actually make cold hard cash. Sometimes that cash will trade at a big multiple, sometimes at a small multiple but despite the fads that are multiples and hot or cold sectors, cash never goes out of style.”

Raising money is hard and it’s often gating to growing a business but in and of itself, it means absolutely nothing. I’ve seen it captivate good entrepreneurs far more than it should. Every minute spent raising money is a minute not spent being creative and building products that people want to spend their money on and therefore a minute not spent on actually creating wealth. Since many more companies raise money than ever make much, it seems that there is a lot of evidence that raising money – as hard as it is – is easier than making money. Something to think about when you are reading your press release about how much money you recently raised.

IT is your modern day spade - commit to making it a competitive advantage or at least not something that hurts you.

If you were a farmer, would you have a great tractor? Of course you would. It’s your competitive advantage. In knowledge businesses, computers are our tools. Insure you have great tools and get the most you can possibly afford. Save money somewhere else. I was recently out looking for new office space in NYC and we looked at the office space of a division of a large company; I’m not 100% certain that this was the case but I think that the reason they were giving up their space was because the company was downsizing. I saw their software developers working directly on laptop screens and had a good laugh (and perhaps discovered the source of their business problems?). This is a company that could easily afford new monitors for all of their engineers. Even a 23″ monitor per engineer would be a huge upgrade. My co-founder Eytan tells me that at Microsoft they had this penny wise pound foolish mentality as well and despite Microsoft making a billion a month in net income, he knew an engineer who had bought his own 30″ monitor. I’m guessing someone in finance did the math of 30,000 engineers at Microsoft and multiplied it by $1,000/monitor and decided that $30,000,000 is a lot of money. And of course, $30M is still a lot of money. But not for Microsoft which is after all a software company where the only tools worth mentioning are computers.

People are your most expensive asset – not computers

If you remove an employee, you can upgrade the computers of all the other employees in your startup AND buy them lunch each day to boot. For a small startup, it’s very hard to save money in IT at the current price of hardware. Unless you are in a particularly capital equipment intensive business, your people are your biggest costs and also your biggest lever on success.

Reduce the number of people you have to reduce your costs and then improve the productivity of those you have through better people using better tools.

Computers last longer than you think

With good upkeep and selective upgrades – and in the case of Windows (Vista and XP at least – too early to tell on Windows 7), a reinstall of the OS every now and then – a computer will now last 3 to 4 years from the time you buy it before it’s really hurting you. And as I state below, SSDs may change the game even further.

A faster CPU is no longer the best way to improve the performance of your computer

I hate slow computers. I want the computer to be able to go at least as fast as I can go and I don’t want to wait. Ever. It used to be that that meant I was upgrading my computer every year or so – sometimes more often than that. Decadent? I use the computer an awful lot so I’d rather skimp elsewhere. I could probably afford to skip a meal out or two and at 50 bucks/meal (Manhattan…) it does not take that many before I’ve made a decent down payment on the next computer.

But I recently discovered the wonder of solid state drives (SSD). Coupled with an upgrade to the pretty amazing Windows 7, I’ve got a nearly two year old Lenovo T61 laptop that feels faster than my incredibly souped up desktop (quad core CPU, 8 GB of RAM, 2×10K RPM in RAID0).

Don’t worry about the geek talk if your eyes glazed over on the speeds and feeds verbiage. The point is that if you want to upgrade a bunch of old PCs, you should not buy new computers. Instead, add a big monitor (you may need to upgrade the video card to make effective use of the larger monitor), an Intel SSD (about 200 bucks now), and make sure you’ve got the RAM as high as it can go. Then install Windows 7 (64 bit) and prepare to be seriously impressed. Everything now happens instantly.

Engineers need big monitors

Get your software developers 30″ monitors – 2 of them per person if you can afford it. Joel Spolsky has an extensive guide to how to treat your engineers. I know that there are varying schools of thought on this but as with Joel and as with Microsoft, we strongly prefer to keep our software developers in offices where they can old fashioned peace and quiet. Lost productivity of a software developer is even more expensive than the cost of additional expensive (but decreasing) Manhattan real estate.

It’s not just engineers – everyone need a big monitor

A big monitor is probably the cheapest thing you will buy this year relative to it’s value. How many hours do you sit in front of your monitor for each year? How much does the monitor cost? What is the cost per hour? A bigger monitor makes you more productive and obviously the cost amortizes well. Just be forewarned – Once you go to a bigger monitor, you’ll never want to work on that tiny laptop screen again and working while traveling will become a bit tougher than it used to be.

Everyone other than engineers gets at least one monitor at 1920×1080 resolution. If you can afford it and they are using a desktop, get them dual 23″ monitors. Laptop users should connect to external monitors. HP and Dell both make great 23″ monitors that cost about $200 and run at 1920×1080 resolution.

Back in 1984, my Dad bought me and my brothers a Mac. We were the cool kids on the block in Ithaca, NY because our Mac was no ordinary Mac but rather a “Fat Mac” in fact as it had a full 512k of RAM – not the lowly 128K that the unlucky had to deal with. That began my love affair with the Mac – a love affair that continued until late 1995 give or take a few months.

I first browsed the web on a Mac on Mosaic followed shortly thereafter by Netscape; that’s assuming you don’t count Lynx on Unix/Solaris in 1993. But by late 1995 I had interned at Microsoft (summer 1995) and the Mac OS had become unstable enough to be somewhat unusable – Steve Jobs was still a few years away from coming back to Apple to save it. In the interim, Windows had gone from the absolutely terrible Win 3.1 to the usable Windows 95. I was the fortunate recipient of an inexpensive – but good – laptop running Windows 95 and I’ve been on Windows ever since. With the release of the iPod I once again became a customer of Apple’s and I was reminded of how cool their hardware could be, how expensive it was, and how it was typically unreliable. I’ve had enough iPod’s fail on me to become somewhat convinced that the Apple folks build obsolescence into their hardware and I’ve seen my brother Eytan’s iPhone battery die around 2pm while on a business trip often enough to quietly laugh at how silly he is to not have a good ole Blackberry like me (even if my Bold does run it’s battery dry in about 24 hours).

All of this had me feeling a bit old and uncool so one day not too long ago, I walked over to the cool looking Apple store during lunch; the Apple store at 14th street and 9th Ave is walking distance from the office. I had in mind that if I did not upgrade our entire company to Mac’s, I’d at least make myself nearly as cool as some of the young hip people who I work with and get myself a Mac laptop.

And then at the store it dawned on me. Forget about being cool – I’m not nearly rich enough to be a Mac person. If I wanted our photo editors (they are the ones who select the photos that end up in our hotel reviews like this one of the Hotel Renew, Oahu, Hawaii) to be on a Mac, it would cost me nearly two times as much for similar hardware as it would on Windows 7 (a great OS BTW – more on that later). Here’s the math. It’s not a perfect comparison but for our needs, the computers would be more than equivalent. The Mac would cost me more than $2,000 more.

Mac Pro Tower

• Mac OS (a given)
• 2.66Ghz Intel Xeon quad core
• 8GB of RAM (DDR3 1066)
• RAID card
• 1 640GB SATA
• 4×15k RPM 300GB SAS drives (bought aftermarket and installed myself)
• Nvidia GE Force GT120
• Total Price: ~4,700 from Apple Store (SAS drives but elsewhere)

Cost of parts for a windows 7 equivalent

• OS: Windows 7 64bit- $134 (currently at this price from newegg)
• Case – $80
• 12GB DDR3 1600 RAM – $260
• Power Supply: $75
• Video card: EVGA GE Force 9800GT 1GB – 135
• LSI RAID card – $200
• 4×300GB 15K RPM SAS drives – $1,280
• Motherboard: $130
• Misc cables and parts
• CPU: Intel Core i7 920 Nehalem Quad Core – $280
• Total price: ~$2,600

Sticking with Windows 7 and commodity hardware

So much for that partial mid-life crisis. I’ll be sticking to Lenovo laptops (x200 and x301 – preferably with SSD drives), Windows 7, and when we need desktops, machines we build ourselves from commodity parts; at our scale, it can make sense to build our own machines vs buying from Dell but you have to have someone who is willing to sacrifice what little spare time they have to make this happen. The advantage of building your own is you get exactly what you want at a price you’ll be hard pressed to get from Dell (truer as the machines get higher end) and you won’t get any of Dell’s terrible “value added” bloatware preinstalled on the machine when it arrives. When we buy Lenovo laptops, we don’t even bother with the pre-installed OS. We just reinstall the OS from scratch.

So what’s the problem with revenue projections?

As most anyone who has been associated with a mid to large company has experienced, “the plan” (and beating it month over month) is a kind of sacrosanct concept. Management teams and executives spend weeks, if not months, a year putting together elaborate spreadsheets – with 10s, if not 100s of assumptions/variables – that attempt to project where key metrics like revenue and profitability will be in a quarter, a year or five.  Companies like GE were well regarded for always meeting or exceeding their projections and their stock price went up and up – consistently and predictably. Until they didn’t.

The problem with the revenue/profit/key metric projection business is that those metrics are lagging indicators. They are the effect – not the cause and you cannot control them directly. Companies that can control them directly are playing accounting games or worse. Managers and leaders who are rewarded based on their ability to predict the future – vs create the future – are being given huge incentives to either sandbag their numbers (create a number they know they can get above) or to play accounting games.

But yet misguided executives and boards at so many companies – and startups are not excluded from this – spend a large percentage of their board meeting time centered on the projections game. Why? Because it feels very official and very organized and disciplined and because it’s easy. It’s what you think business is supposed to look like. The professional manager CEO that the board hired to bring in “adult supervision” has his spreadsheet and his clipboard and presents well and confidently and the whole experience of being told what the future holds is very comforting which is fantastic since startups are inherently stressful and uncertain. For a VC board member who sits on 10 to 12 boards, he (it’s still rarely a she) can sleep well at night knowing that the CEO has got the numbers under control. Never mind that anyone can put any number they want into a financial model. “If sales go up 5% a quarter and costs come down 10% a quarter…” You get the point.

In a small company when the, needed, projections you sell yourself or your investors turn into a plan that needs to be hit month over month, quarter over quarter, you are subtly but surely creating strong incentives for the team to manage the results instead of the cause and also eliminating one of the major assets a smaller company has – it’s ability to react in near real time to the data it is collecting about how it’s plans are actually working. After all, reacting in real time means not hitting the short term plan.

Since small companies become big companies when they, first and foremost, excel at creating something that customers really want that they can’t get elsewhere, it’s critical to insure that management incentives are structured to encourage working on the cause of the numbers, not the effect. Further, it’s critical that the management structure acknowledges that trying to predict the future on a month by month or even quarter by quarter basis is a fools errand. When you consider that the effect of today’s actions (causes) don’t often show up in the results for months or years, this is particularly important to instill in a company’s culture very early on.

This does not contradict the importance of measuring the critical metrics in your business. Just be careful what you measure. Are you measuring the cause or the effect? Beware trying to manage the lagging indicators.

Outsourced Hosting (Rackspace, Pair Networks, Amazon Web Services, etc)

• You buy servers or units of performance (RAM, hard disk, processor performance)
• Vendor worries about data center functions including power allocation, cooling, internet (ISP) bandwidth allocation
• Vendor does all the IT work – they install the OS, install the machines in the rack, connect the machines to the internet, etc.
• For $5,600/yr Rackspace will sell you the power of 2 processors, 8GB of RAM, and redundant (RAID1) 10K RPM 73GB hard disk space plus 24TB of data transfer/yr.
• You focus on writing software and building your application, content or service instead of worrying about pesky little things like hardware, ISPs, routers, and switches.

Managing your own hosting

• You don’t install the servers at your office serving off a cable modem, T1, or DSL line.
  • If you were planning on doing that, call someone like Rackspace or Amazon instead and learn about the wonders of virtual hosting. ASAP.
• You find a collocation provider like Level 3, Internap, Equinix or Switch and Data.
  • A collocation provider is someone who runs a secure building – or a space within a building – where they have pre-arranged to have cooling, air conditioning, lots of power from the electric company (”the grid”) and power redundancy via batteries and diesel fuel generators. These are sometimes called data centers, POPs (points of presence) or telecom hotels if you are telco person. These are not the same as phone company (local monopoly phone companies like Verizon or Pacific Bell) central offices. In New York City, buildings that are primarily or entirely used for this purpose include 60 Hudson and 111 8th Ave.
• The collocation provider sells you rack space (a full rack, a half rack, multiple racks, etc.) and power.
  • They cool and secure the facility and insure (at least theoretically – I’ve got a good story about how the uninterruptable power supply at Switch and Data NYC failed during big East Coast blackout a few years ago and took 10s of my servers down with it) that the power stays on no matter what happens.
• You buy bandwidth from the internet service provider (ISP) at the collocation center
  • Typically you buy a given pipe size (say a Gigabit Ethernet connection or a 100Megabit/second (Mbps) Ethernet connection) and you can burst traffic up to the size of the entire pipe but only pay for what you use on average. There are different ways of measuring the average utilization but most use something called “95% th percentile measurement”. You pay some amount per month for the cost of the pipe – independent of how much of the pipe you use – and included in that price is some amount of average utilization. If you use more than that average, you pay more – typically at a price/Mbps
  • Depending on the collocation provider, you either buy the ISP (internet bandwidth) service from the collocation provider directly or from one of the ISPs they have “on-net” (which simply means that the ISP is located in the same facility and is easy to connect to). Unless you are running a huge application with massive traffic (think YouTube, Google, MSN, the New York Times) you buy your internet bandwidth from one provider and let them take care of the redundancy requirements.
• You buy your own servers
  • And put them in the rack and connect them to the power that the Collocation facility sells you. You can get whatever kind of server you want with whatever ratio of CPU:hard disk:RAM you want. More on this in a few bullets.
• You buy your own switch or router.
  • You connect your servers to the switch/router and then connect the router to the ISP that you’ve bought bandwidth from. You have to configure the router. You likely configure the router with more than one physical connection to the ISP so that if the connection fails (the wire gets cut or the port on your router or theirs fails) you are not out of business.
  • The days of exponential innovation in routers/switches is behind us. While you can’t get fired for buying Cisco, there are other great options – less expensive as well – from vendors like Force10 and HP. You’ll want an experienced – and pragmatic - network engineer to help you figure out what to buy so that you don’t massively overspend. You can waste a lot of money on hardware you won’t have any need for for years to come (unless you rapidly become the next YouTube). While you won’t be able to use a $300 Linksys to connect to the switch/router of the ISP you are using, in all likelihood you’d be hard pressed to use more bandwidth than that Linksys can handle. Non blocking gigabit Ethernet switches were modern and advanced five or six years ago. Today you buy them for a few hundred bucks. They’ve made office LANs dramatically faster, have enabled the easy deployment of VoIP based PBXs and in general are no brainer plug and play. Stay tuned for a future post on startup IT made simple where i’ll discuss what you need to get started in IT for a startup with anywhere from 3 to 200 people and how to insure you don’t waste a lot of money on stuff you don’t need but that IT vendors want to sell you.
• Cost to get started: Not including the cost of the servers and switch/router you will use, the cost to get in the game here is on the order of 1,000 to 1,500 dollars/month depending on what part of the country you are trying to locate your servers in.
  • Collocation space in locations with expensive power and expensive real estate (e.g. Manhattan or Silicon Valley) costs more than in places where real estate is nearly free and power cheap bc of a nearby nuclear power plant or hydro-electric facility. It’s no an accident that the biggest Google and Microsoft data centers are not in densely populated places and are typically near a large dam.
• You manage all of the IT issues yourself
  • You configure the servers, the switch/router, the OS, etc.
  • If you have a hardware failure, you deal with it yourself
• You control performance – this is the MOST important reason to do it yourself. Performant sites are not performant by accident
  • You don’t share your servers with anyone
  • You control – for the most part – the quality of the internet bandwidth your servers are seeing. The ISP is still a bit of a black box but it can be measured pretty easily and there are good vendors like Internap that provide a performant service and do it well.
  • Most importantly: You can control the ratio between CPU and RAM. Modern CPUs are astoundingly fast and are often not the bottleneck in applications. The speed at which data (content) gets to the CPU is often the bottleneck and being able to take advantage of the revolutionary RAM density that you can put into a rack of storage is something very special and one of the most fascinating aspects of modern application development.
  • You know how people tell you to add more RAM to your PC to make it run faster? Well, the same concept applies to your servers and the applications they run on. It’s not trivial to take advantage of it but RAM is orders of magnitude faster than hard disk (or even SSD) so content delivered to an end user from a server that is primarily using RAM is going to be dramatically faster than one that is dependent on hard disks. The laws of physics are strict about that. And while it’s not cheap (figure on the order of $200K), you can now get nearly a Terrabyte of RAM into a single rack.
  • The likes of Amazon and Rackspace simply cannot afford to give you the prices they do and keep your data primarily in RAM. Disk is orders of magnitude cheaper; RAM is, all in, about $150/GB in a server and hard disk – even using RAID1 for redundancy – is on the order of a $1/GB.
  • You can take advantage of faster large storage technologies like 15K RPM hard disks or solid state disks (SSDs) and allocate them in whatever ratio you want. The economic decisions are your own.
  • You can take advantage of a content delivery network (CDN) like Akamai (this is not necessarily unique to doing it yourself)
  • None of the above will fix poorly written software. If you don’t write software that can make use of the hardware, you won’t be performant.
  • Lastly, the economics scale well. If you have your own rack, at first your servers will be incredibly lightly loaded and relative to outsourcing, you will be paying top dollar. BUT, your site will scream and the first users who come will have an amazing experience (remember that first impression thing). If your site is successful, that one rack will go a very very long way and depending on your application, will serve 100s of thousands or even millions of unique customers per year. It will likely be a very long time before you upgrade anything in it. Assuming you chose a business that makes money (it’s not a business unless it makes money) the cost of the hardware and the rack will be irrelevant to you – a real rounding error relative to the profit they generate. This is not true if you chose to build the next YouTube in which case your serving costs will continue to scale massively as you increase your users.

So should I outsource or do it myself? By looking at the comparison above, it would seem that outsourcing it is the obvious choice – doing it yourself seems incredibly complicated. Truth is, the likes of Rackspace have made it much easier to buy service from them than the collocation providers have and simplicity of service and purchase is what they are selling you. The underlying elements – computer hardware, power, ISP, cooling, real estate – are all commodities which are sold at low margins. Rackspace sells their combined service to you at a a better margin (for them) bc of all of that service that they are selling you. How big a margin they make depends on how big or small you are. If you are running a blog – like this one – that gets 10s or even 100s of thousands of page views/yr, you can’t possibly justify the cost and complexity of managing it yourself. But if you are running a site that needs to be at reasonable scale to be successful – and most web sites can’t hope to be profitable without significant scale – and needs performance as a competitive differentiator, you need to consider this insourcing – and using lots of RAM – very closely. Given my own experience with mid-scale data center installations at Epana and our collective performance obsession at Oyster, we decided to make the rather large upfront investment and manage our own servers. We use Force10 switches, Internap collocation and ISP services, servers from Rackable (now SGI) and a ton of RAM (we have 100,000+ photos on the site) to get a site that is quite fast depsite being photo intensive – for example, the Oyster Review of the Kahala Hotel and Resort, Oahu, Hawaii has 600+ photos.

Why? Because Startups are not for the faint of heart (a topic unto itself, for a later date) and by derivative, the life of an employee of a startup is not “typical”. Relative to getting a “normal job”, there are the differences you’d expect—no fancy office furnishings (though if the startup has a clue, far better technology/computers and good chairs), less formal attire, less formal behavior around the office, tolerance for eccentrics (who can still get along with others), and the regular stuff that everyone kind of expects when they think about startups. But the truly big difference lurks underneath the startup veneer. It’s a large part of what makes successful startups successful and it’s why a big company (BigCo) can’t add a cafeteria, free lunches, bean bags and black lights, and suddenly become a startup success. That intangible startup fuel is often called “culture” but that’s a kind of vague term and it’s not particularly unique to startups to have a culture. All companies—from the most inept and slow moving to the fast moving “killing it” startup—have culture, though sometimes the culture is just that they promote incompetence and mediocrity. What startups have that is in rare supply in big companies (and startups as well, surprisingly) and is incredibly hard to create from thin air is passion.

What successful startups universally have is passion. The people who are running the company and all of the employees take tremendous pride and satisfaction in being better. They don’t want to win—they literally NEED to win. The passion to win, and the sacrifices you end up making in the rest of your life to do so, can make you (and your significant other) nuts if you are not “startup material”. This is why I try to warn people before they walk in the door that this is not going to be like every other place they work. You don’t have to be a startup to have that passion for winning. Goldman Sachs has managed to bottle it and keep it despite their size. Places like the Navy Seals and CIA are conventionally known to be places where the elite go (and lose the rest of their lives in the process) in the pursuit of winning.

It’s for this reason that we almost never chase potential employees. An employee who does not deeply want to be in a startup—which manifests as them beating down OUR door—will almost certainly end up burning out on startup life really quickly. It does not matter if you are smart or not (though we don’t hire dumb people), well educated or not, or experienced or fresh out of school. Harvard on your resume does tell me that you likely know how to work—or you have really rich and connected parents—but that’s still not enough to know whether or not you will succeed in startup life because working by yourself to get great grades or get into Harvard is not a good predictor of whether or not you can be passionate with a group in the uncertain world of startups. Though don’t get me wrong, we definitely look at prior success—for young people, that’s grades—in the people we hire.

By the way, there are many “professional manager” run startups that have lost a lot of the passion they once had. In the interest of professional appearances, their investors (most venture investors have not a clue about what they are doing) simply wrung the passion out of them and in so doing, make them a BigCo in a small company’s clothing. Small companies that lack passion have the culture of a big company with the lack of resources of a small company—a near certain doom-loop-inducing set of attributes. I can’t wait until there is a market where I can short those folks.

Here’s an email i recently sent someone who applied for a job at Oyster:

Hi XYZ –

Ariel and I spoke just now after your call and it sounds like you have some doubts about whether Oyster is the right place for you.

Since this is such a critical role for us and since we have so many applicants for the position, what is most important to us in the person we hire is that they are 120% committed and excited by the challenge. If our opportunity is not clearly more exciting and more interesting to you than any other one you are considering, then it’s almost certainly the wrong fit.

If there is anything we can do to help you understand our company, our history as entrepreneurs, the PR opportunity at Oyster, or your role in PR once you are here, we are happy to attempt to do so.

So give it some thought. If this job is not overwhelmingly exciting for you, we’d be happy to understand what your concerns are and try to address them or mitigate them. But the role is so important, and the demand for our position so strong, that one way or another, we have to hear from you that this is something you want really badly above all other opportunities. Tonight we heard that we are being considered in comparison to another interview you have. Honestly, that’s not the way we work. Part of the success of Oyster is the tremendous passion that our people have for the company and what we are doing. Without your demonstrating that level of interest, we cannot bring this to conclusion.

If money is your issue – there is a small amount of room to move there. Within reason, money won’t be the reason we lose you given our assessment of your talent. But parallel with that, we need to hear that this is what you really want.

All my best,

Elie

This is the world I’ve lived and learned in for the past ten years. My business partner Ariel and I have launched three startups in NYC since 1998, and we’ve worked in nearly every “startup neighborhood” (except Brooklyn). We’ve had some successes and some failures. We like to think we’ve learned a lot along the way and we’ve definitely had a lot of fun doing it. Startups, innovation, and creativity have seeped into our blood to the point where we could not imagine doing anything else or live a day without, in some way or another, thinking about our work.

Ariel and I founded our last startup, Epana, in 2000 and rode it from the end of the last bubble to a near bankruptcy in the fall of 2002 and through to a large profitable company with more than 400 employees by the end of 2005. We can’t say we’ve seen it all; who has, and who would want to (if in ten years I realize that I know no more than I know today, I’ll be deeply disappointed) but at Epana we saw and experienced a lot and we’re looking forward to telling some of the stories. We had to deal with challenges and opportunities in a multitude of disciplines including technology (making bleeding-edge technology not only work but scale), consumer branding, third-party distribution, a large company-owned sales force, general management, human resources, analytics, financing, and the dynamics of a venture-backed, board-of-directors-controlled company. I was the CEO, and left in mid-2006 to “pursue other opportunities” (more on that later), and Ariel was the COO. He left about a year and a half after me. In 2008, we put the band back together again—along with our third partner and my youngest brother, Eytan—and after working under wraps for nearly a year and a half, we recently launched Oyster Hotel Reviews.

We like to say that we’ve been to the gym for business and startups over the past 10+ years and this blog, among other things, will be about the lessons we’ve learned and things we’ve observed along that stressful, enjoyable, risky road.

Future posts will include the following topics and I’m, of course, open to suggestions. Looking forward to hearing your thoughts. In no particular order:

• Execution is 99%, strategy is 1%
• Choose your market carefully
• An arrogant VC has been rude and obnoxious to your – admittedly terrible – business idea in a meeting. What should you do?
• What happens to your company if your VC investor goes out of business?
• VCs – generalist vs specialist?
• My advice – choose carefully whose advice you heed
• Why “hot markets” never are
• Overnight success in five years
• It’s not how much you raise – it’s how much you make
• Fire the bottom 10% – do it as respectfully as possible but do it
• Why big companies waste time with business planning and projections exercise
• Why valuation metrics other than profits are the lies you tell yourself
• The cost of the OS you use does not matter
• Leica M9 – The most beautiful camera ever
• Get an SSD and upgrade to Win7 – right now
• Athlete vs experience
• Hiring hit rate
• Democracy – the enemy in a startup
• Revenue solves all problems
• What resumes don’t tell you
• When hiring, look for attributes and capabilities more than experiences
• Hiring for a startup out of BigCo; extremely hard to do
• Do entrepreneurs make good VCs?
• Most VCs are clueless about making a startup successful yet VCs control a lot of companies. Should they?
• How to interview a VC before you let them become a shareholder
• When to raise money
• Are you building an asset or a Company or both?
• How much employee churn should you have in a startup?
• Why you should remove the average calculation from Excel
• Mercenary vs missionary
• Religious wars – Nikon vs Canon and Windows vs Mac
• Why (the right) layoffs are good for morale
• How open should you be?
• Why don’t you ever see James Simons (founder of uber successful Renaissance hedge fund) on CNBC?
• What do you do with really smart and productive employees who are not passionate about winning?
• Don’t chase the mythical “what a future investor will want to see” strategy
• How is the valuation of a company set in a negotiation with VCs?
• Companies are not charities. Companies that don’t make money are not worth anything. Simple, right?
• Why has Google invested billions into internet charity, YouTube? Would they do it over if they could?
• CEOs run companies. Boards run CEOs. Who runs the board?
• What kind of computer equipment should I buy myself and my team?
• The path is the point – are you having any fun?