CEO of Oyster.com – a blog about startups, entrepreneurship, photography, and business building

Oyster‘s much loved photo fakeouts made it to Bing Travel today!

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I previously spent many years running a business whose products I had no real passion for. I learned a lot about entrepreneurship and the high growth experience reinforced my passion for technology, innovation, and entrepreneurship. But I also learned that I wanted to work on a product that I had a real passion for – it had to be about more than money or success but also about building something that I would want to be a customer of. I had always loved hotels and photography and so when the idea for Oyster came along it did not take much to convince me that it was an idea that I worth getting excited about.

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: [click to continue…]

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• Great management team vs bad business, bad business wins. Great management  team and a great business and something special happens. (this quote can be attributed to many people include Buffet/Munger and Andy Rachleff of Benchmark). Choose the market you are focused on VERY carefully. In a world of too many VC companies saying “we will figure out monetization later”, it’s critical to ask yourself if there is a history of customers paying for the product/service you are offering?
• Great businesses attract great management teams; a very talented acquaintance applied for a job at Google in 1999/2000 and asked to be paid only in options. Smart people want to go where the fun and money is. Success is the most valuable recruiting lever you have.
• VCs rarely want to give you money when you need it and want to give you [click to continue…]

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Why did Microsoft miss search? Why did Sony miss portable digital music and lose out to a revolutionary entrepreneur (with the resources of a big company)? Why did Intuit not beat Mint? Why has EA had to buy its way into social gaming?

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.

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The most recent issue of NY Mag features a long article about the compensation battles raging between Feinberg and the current CEO of AIG (and the AIG board and employees by extension). Pay regimes mandated by Feinberg are doomed to fail – the traders at AIG can, should, and will go elsewhere if AIG pays them a below market rate for their services. Trying to fix the pay problem at AIG will only work if we fix it systemically. The real question is, do we want to fix it?

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.

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• Sarah Palin at NYMag.com
• Frontline looks at public healthcare systems in other rich countries around the world
• Great book about Steve Jobs – what a truly amazing innovator and creator. He created the portable music player market, the first commercially available computer with a GUI (PARC created the GUI, not Apple) and by funding Pixar for years and years before they were profitable, changed the way we think of animated movies.
• Inside the Michelin guide process at the New Yorker

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Pretty fascinating chart below. While I most certainly identify as a social liberal and believe that those of us who do business in this country do it on top of the core foundational assets of American society (the rule of law, contract law, infrastructure, etc.), as a society – and our political representatives in particular – we are writing checks that have to be cashed by a very small percentage of our society. I’m with Buffet that those who make a lot of money in the US should – at the end of their life – give most of it back to the society that made it possible in the first place. We don’t want an ever increasing polarization of wealth with a small set of haves responsible for funding everyone else. We also don’t want to be in a situation where everyone is supposed to be equal and there is no reward for hard work or exceptionalism. It’s a tough line to toe. As has been said about Democracy, capitalism is the worst system except for all the others.

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

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I’ve found that great entrepreneurs have, through the trials and tribulations of building what they’ve built, typically come up with a set of lessons learned along the way. Two great life/business lesson lists that I’ve come across recently – both are very much worth reading if you are already an entrepreneur or thinking of becoming one:

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 [click to continue…]

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