MassTLC Entrepreneur UnConference
So many people have written about the MassTLC Innovation Unconference that I’ll just record my personal impressions. My own blog comments are in [square brackets].
I was one of the so-called “experts”. I originally attended in my Common Angels role. But then Jeremy Wertheimer, CEO of ITA Software, Inc. and my boss’s boss, also attended as an expert. So I introduced myself in both roles. James Geschwiler, executive director of Common Angels, was one of the main organizers of the Unconference, and I counted eight members of Common Angels in attendance, although all but James and I came under some other affiliation.
For more info, see the coverage in Scott Kirsner’s Innovation Economy, Mass High Tech, and The Boston Globe. (There’s a mistake in the Globe article: Jeremy, did not say “It’s greed on the way up, and it’s greed on the way down”; the second half was “it’s fear on the way down”!
Whenever I have the chance to talk to a college freshman, I advise them to find out which professors are the best lecturers, and take whatever courses they are teaching, rather than browsing the catalog and choosing based on topic. I followed my own advice and picked sessions based on the speaker.
Bootstrapping, by Sim Simeonov of Polaris Ventures, and Joe Caruso of Bantam Group and Common Angels, was about how to start a business without venture or angel capital, and then if or when to seek out such capital. Sim helps start and work with new companies at Polaris; Joe is on the board of Common Angels. They both know a tremendous amount about startups. Sim and Joe mainly let the audience tell their stories and give their opinions, and then they added comments, often of the form “but on the other hand”, to clarify tradeoffs.
Here are some of the most salient points. First learn what the customer wants, and then think up the product. Having too much capital can lead to over-hiring and over-spending; if you have the money, you’ll spend it, whether that’s optimal or not. You should have a very good idea of how you’re going to spend the money!
When you have investors, you’ve taken on business partners; some people feel that they are working for the investors, when they really wanted to be their own bosses. The reply was that investors do not want to run companies. Often a CEO is so busy and nose-to-the-grindstone that she can’t see the big picture and think about long-term strategy; a good board of directors can help.
It’s very important to know yourself and understand your personal goals. Some people don’t want to run a fast-growing business of the kind the attracts venture and angel capital. Do you want 2% of $1B, or 20% of $1M? Would you be satisfied with enough money to be financially independent, or do you want more? Or would you really rather be doing engineering? There are 10M small businesses in the USA; every year, 3K get VC funding. For many people, simply getting a good income is just fine.
Everything has an opportunity cost, and you must take that into account as part of your tradeoffs. Start with your exit plan in mind (how you’re going to cash out, e.g. an acquisition or an IPO); these days, $60-70M is an average exit. But typical venture capital firms can’t deal with that, because it’s too small for them to devoted attention to, as they have very big pools of money to invest. If you’re going to deal with venture or angel capitalists, understand their business model.
One way to bootstrap is by sales to customers; in fact that’s probably the best way. You can’t do that with a high-capital business such as starting a car company. If you have a track record, you can try raising money from former business associates, as my friend Jules Pieri is doing. Finally, there’s the traditional way: “friends and family”.
You can start small, conserve money fanatically (except salaries for non-founders), and not accept capital. That works best if there is no competition and you can take your time.
Sometimes the time to accept capital is when your business is running, but you can see that now your market is growing and there’s an opportunity. But you need to hire more engineers, marketing and sales people, and so on. [This is what we call the "go to market" stage, and is typically where Common Angels would invest.]
One attendee recommended reading Paul Graham of Y-Combinator. [I know Paul through the Lisp world, which Paul is designing a new language called Arc .] Paul is a great writer, and there’s a lot of good advice in his collection of essays.
If you accept capital, and your company grows enough, your board of directors might want to replace you as CEO with someone who has experience dealing with a company of the new size. Joe pointed out that while you may not like this idea, it might be a very good move. Two of us recommended the work of Prof. Norm Wasserman of Harvard Business School, on the subject of “Rich or King?”, the tradeoff between retaining control of your company versus making the most amount of money. Prof. Wasserman gave a great talk about this at the Business of Software conference, and you can read his paper. See also his blog, Founder Frustrations.
The most important factor for success is to have customers who love your product.
Mobile Technology was discussed by Rich Miner, who started Android and sold it to Google. He’s now the head of Google’s Android project, which is creating an open and portable platform for mobile devices. Vanu Bose of MIT explained about the various forms of wireless technology, such as CDMA, GSM, EVDO, UMTS, WiMax, and many others. This session was more of a lecture with questions.
I know relatively little about mobile technology, and I learned a lot. Here are some of the high points, at lesat for me. This is an exciting, “tipping point” time that has been anticipated for years by those in the mobile industry. Finally there are mobile platforms with big screens, touch input, simultaneous voice and data, and good network performance. Carriers are offering unlimited data plans.
This allows a wide variety of useful applications to be written. Obviously there is now the iPhone and its highly successful App Store, and soon there will be Android phones with the same kind of abilities and store. Miner pointed out that there were 1.27B (!) mobile phones sold this year, but there are only 10M iPhones, which is a very small fraction. [But is he counting all mobile phones, including the vast majority that don't have the big screens and cannot run these apps?]
Nokia has bought Symbian, and will turn over their IP to the Symbian Foundation, a non-profit whose purpose is to advance the Symbian platform. Miner stressed that having only one platform, owned by one company, is highly undesirable. [Gee, I wonder whom he was tacitly referring to?]
It was commented that any country with four or more dominant carriers get many benefits from the competition between the carriers, who are highly motivated to respond to customer demands, and innovate. The USA has only three dominant carriers now, but two more are coming (one from Craig McCaw ) [I did not get all of this]. There’s something new being tested in Baltimore that’s very promising and working well [was this about Believe Wireless or Sprint's WiMax? Sorry, Miner was talking quickly and I am not well-versed in all this.]
Vanu Bose explained that the most successful carriers were the ones who used lower frequencies, since they have a higher range and therefore need fewer cell towers. AT&T and Verizon control the 700MHz and 800MHz [that's considered "low"], forming a duopoloy [which means little competition]. These frequencies are particularly valuable in large cities, because they go through skyscrapers, rather than being blocked by them. There is always a tradeoff between megabytes [data rate], capacity, and coverage. [In the context of mobile phones, the word "bandwidth" refers to an amount of space in the electromagnetic spectrum, not to data rates.]
UMTS theoretically can do data rates of 3M downstream and 1M upstream, but it’s relatively new, whereas GSM has been optimized for years, and tests show that UMTS is actually far slower, like 200K.
The reason that wired networks operate according to one standard is that they are carrying so much data so fast that there is no room for improvement; they are very close to the Shannon limit. Wireless isn’t there yet, so there’s competition to do better by using new proprietary techniques. We can’t expect better standardization until that process reaches its culmination. LTE, for all practical purposes, does not exist. WiMax really is being built out. [There was a lot more of this kind of thing.]
But application writers need not study and master all this. What matters to them is the software platform.
For voice communication, research shows that users care more about latency than data rate. [That was a surprise to me; I rarely hear about latency figures!]
Android lets you download apps from any old web link, not just from their store, although of course you have to first discover the web link. YouTube is so successful because it’s the only place you go for videos, which makes it easy to discover them, and the Android App Store will be analogous.
I asked how you get your apps into the Apple iPhone App Store, and what you pay for this. Miner said that first you have to apply to be a developer, but very likely you won’t have any problem. Then you submit your application, and “the App Store gods cogitate for a few weeks; nobody knows what criteria they use.” Finally, if you are charging money for the app, they take a 30% cut of all revenue. [Also, they have just announced that they're removing their non-disclosure ageement requirement for developers.]
I know that 30% is the cut they take for music bought through iTunes. It seemed to me like a large amount, but everybody pigpiled on me saying, no, it was very reasonable. Distribution costs for software are usually high. And book authors only get 10%. I was not convinced by those arguments. Who cares about any of that? The point is that it’s very cheap to distribute software to a mobile device, and what value is the store really adding? If I were able to set up my own, competing store, I could easily charge less than 30% and still make a tidy profit. The answer to that is: you can’t, because Apple makes it technically impossible (for unhacked iPhones). Well, doesn’t that mean that Apple is charging a monopoly “rent”? With Android, would it be possible to set up a competing app store? By this time the conversation had moved on, so I didn’t get an answer. If so, that might be a business model for a startup, although I suppose Google would just lower their price to match. That would be good for everyone, except the startup!
Will you be able to do advertising-supported apps? Miner thinks it’s possible but points out that it’s hard. There isn’t much screen space. The ads really must be ads that the user genuinely wants to see, because they’re relevant and useful.
Does Google make money from Android? No [by which I take it he means, not directly]. It is strategic for Google, to avoid someone from owning the platform as a monopoly. It keeps the playing field level. Google can offer non-free applications, but you can compete with Google on a fair footing. Chrome (the new Google browser) exists for the same reason. The Android browser is as good as the iPhone one; they’re both based on the WebKit technology. Local applications will have some important advantages over browser [Software as a Service] apps. Android will not have Flash support initially, but he thinks he’s heard that Adobe is working on it. There will be far more web-capable mobile devices than home computers, and we’re already seeing companies maintain two different web sites, one aimed at each. In the long run, the web (at least some of it) may be more addressed to mobile devices than to home computers. There will be opportunities for companies to be publishers, a la Broderbund and Electronic Arts. There will be so many apps that you’ll learn about them through major marketing campaigns. [It sounds to me analogous to "labels" in the music industry, which have pros and cons.)
Selling was a lecture by Bob Metcalfe, famous co-inventor of the Ethernet, and CEO of 3Com, and now a general partner at Polaris Venture Partners. He drew a large crowd.
Much of what he said comes from his 1992 Technology Review article, Zen and the Art of Selling, so I won't repeat all of that. Much of his talk was oriented around direct sales, i.e. when you have real live salespeople going out to specific customers. [Of course, there are many other models. My impression is that direct sales is most appropriate when each sale tends to be for a very large amount of money. Salespeople are very expensive, so direct sales must only be used where it's highly appropriate.]
Engineers must learn to have respect for salespeople; many do not. The two cultures are very, very different, and being a great salesperson requires a great deal of expertise. [I first saw these cultural differences at my first company job, at Symbolics. My friend Bill York went over to the sales side and then came back and explained it to all of us software developers. The book Corporate Cultures hits the nail right on the head; it's well worth reading.]
When you’re a startup, try approaching a potential customer by saying, very politely: “I’m developing a new XXX. I’d like to talk to you about what you’re doing, so that you can give me feedback.” This means that you are not going to make a sales pitch to them, so don’t. (At least not at this stage.) Many potential customers are honored by this, and would enjoy talking to you. The information get is priceless, and it’s also the start of a relationship that might eventually lead to a sale.
When talking to venture capitalists, if you want money, ask for advice. And if you want advice, ask for money.
Marketing is not sales. Marketing has many roles, including creating tools that help salespeople (brochures, ads, all kinds of things), generating leads (whom to call on), setting prices, and determining appropriate quotas for each salesperson’s territory. [I didn't know that quota-setting is (sometimes) done by Marketing; I had assumed that sales management did it. I suppose these things vary.]
Bringing along an engineer can be good. The engineer can answer detailed technical questions, and talk to the techies if there are any around. However, they often feel that they must talk about every feature in the product: “Oh, one other things, I’ve got to tell you about our great …”. After all, the engineers worked hard on that and are proud of it. But a good salesperson focuses on the benefits relevant to the customer, and doesn’t waste time on anything else.
Often you must talk to and cultivate more than one person at the account (the potential customer). You need to learn how the customer’s company is organized, who makes which decisions, and who has which agendas. [A good example I recently heard: the IT department might not like buying a SaaS product that will make IT less important in the company.]
Eventually, you must ask for the offer. This can be emotionally difficult, since it’s only natural to be afraid of hearing “no”. But a good salesperson thinks of “no” as a starting point! You say, “why not?”, and proceed from there. One way to ask for the order is “So, would you like this delivered next week or the week after?”
Sales training courses really are good! If you want to sell better, find a good one and take it.
Credibility matters more than anything else. The customer is very unlikely to buy without trust. First you must establish credibility for yourself, then for your company, and then for the product. A good way to establish personal credibility is to make little promises and keep them. By little, he means “I’ll meet you at such and such time”: do not be late! Or “I’ll mail you that tomorrow”: do it! Even these little things are very effective.
It’s great to get to the customers before your competitor does. Metcalfe was snookered by an Interlan salesperson who would always get there first, and leave them with five challenging technical questions to ask when Metcalfe showed up!
That was the end of the lecture, and then participants spoke. People recommended Seth Godin’s book Permission Marketing, and HubSpot.com for their concept of Inbound Marketing. [I liked Seth Godin's talk at the Business of Software conference and learned that he's highly respected and has written lots of books that people think well of. HubSpot's CTO, Dharmesh Shah, also gave a great talk at Business of Software.]
James Geschwiler asked Metcalfe about sales force compensation. Some of the advice: if there are channel conflicts (i.e. it’s not clear which salesperson, under the rules of engagement, is supposed to get the commission), pay everyone fully. You want to pay the salespeople very promptly; their culture is based on quick turnaround and instant gratification is important. But what if the customer never ends up paying? You could delay paying the commission until you actually get the cash, but that takes too long; don’t do that. Your CFO must make sure that customers are creditworthy, so that if the sale is booked, you aren’t worried about the receivable turning into cash. Then you can pay the commission when the product is booked, or, sometimes, when customer acceptance happens.
James: What about sales compensation for SaaS (Software as a Service)? Metcalfe: I don’t know about that. James: what proportion of the salesperson’s compensation should be a base salary and what from commissions? Metcalfe: 60/40 is common, but 40/60 can work if you have “swashbuckling egomaniacs”. Never put a cap (maximum) on commissions; in fact, raise the commission rate after the salesperson reaches the quota.
Metcalfe added that when you hire a salesperson, see whom they have sold to in the past. They’re bringing all those relationships and contacts with them. That’s a salesperson’s long-term value: he or she cares more about them than your company, since salespeople often switch companies (they have the highest turnover of any category of employees). [I've seen that; when it looks like the company is heading toward trouble, most of the engineers stay to try to fix it, but the most of the sales force takes off for greener pastures.]
James: What do you think about non-compete agreements? Metcalfe: For a long time, I was in California, where they are prohibited. Now I’m a venture capitalists in Massachusetts, and I think they’re great. [When my brother was at Harvard Law, I asked him about these, since I had been asked to sign one. He found a law professor who had just done a study about non-competes in Massachusetts, and found that the only cases in which they have successfully been used against an ex-employee was against direct salespeople who were taking away accounts.]
What if your product breaks? Remember, customers expect this to happen. What matters is what you do next: you should be all over it! Do whatever it takes to make it right. If you rise to the occasion, and fix it fast, they’ll love you.
Hannah Burr had a small group of us discuss “what do you to to keep your life from turning into chaos?” The group shared hints and techniques. Now I know some good books to read, website to check out, and tools to use. I’ll add all of these to my things-to-do list, which is so long that my life is turning into chaos. Check out Getting Things Done, Unclutter, 43Folders, Lifehacker, remember the milk, OmniFocus if you use a Mac.
There were lots of little ideas. One interesting one: Have an outsider look over your to-do list and help you consider how to manage it.
During lunch, entrepreneurs got together in small groups with the experts to talk about whatever they wanted. I told stories and passed on what useful facts I could think of. I spent the second half of lunch talking to Kimberly Patch of Redstart Systems, a startup using voice-recognition technology to make it very easy and efficient to use computers by voice command. This is particularly useful for people with disabilities, such as carpal-tunnel syndrome. I’ve had several friends who were forced to take leaves of absence or even give up their careers entirely because of repetitive stress injuries; this is just what they needed. With this system, you can even do some things faster than with a keyboard and mouse! Again, I offered what useful advice I had, and discussed funding opportunities.
Bill Warner, with James Geschwiler, designed the event. Tom Hopcroft and Heather Johnson of MassTLC did a lot of the work and deserve most of the credit. Their organizer, Kaliya Hammond, also did a superb job. Congratulations!