Month: June 2004

Like any active, early stage venture investor, I have spent a fair amount of time helping my portfolio companies build a management team. And like any venture investor, I wish I could boil hiring down to a more scientific method to make sure that each person we bring on to a company is better than the next. However, that does not always happen. The one constant in hiring, however, is the “A-Player Domino Effect” which basically says that when you hire an A-Player, they bring lots of other A-Players to the table. Think about it this way. Why do so many people want to play for the Yankees? Sure, it is the cash, but it is also the opportunity to work with other A-Players to win a pennant that lures A-talent to New York. Same with the Lakers-Gary Payton and Karl Malone took pay cuts to join the Lakers and Shaq and Kobe to win a championship. I am not saying that in order to have a successful company you have to have a lineup of proven all stars since team chemistry plays a huge role. In fact, every company may have a different definition of what an A-Player looks like. Look at the Detroit Pistons, full of chemistry and a solid bunch of hungry players, who took out the all-star laden Lakers in the NBA Finals.

However, in many of my successful companies, the first couple of VP hires made all of the difference in the world in terms of attracting strong talent and positioning the respective companies for success. For example, one of my companies just brought in an experienced VP Sales from a competitor in the market. Once he signed, he brought on 2 of his top sales performers from his prior company along with the former head of sales engineering. This was great as it helped us fill out the team below the VP-level and brought the company known quantities who had worked with the VP Sales successfully at other companies. Another portfolio company brought on a great VP Engineering who brought 3 of his top guys with him. In each case, both VPs had a few people willing to follow them to the next opportunity. It is obviously a great sign when this happens. It shows me that someone can build a team, engender loyalty, and perform at a high and successful level. Every company or investor may have a different definition of an A-Player but one thing I can say for sure is that hiring an A-Player does not necessarily mean you have to hire the “big name” or “proven all star” in the industry. Many times, I have found A-talent from up and comers who are stepping up into a bigger role, have something to prove to themselves and the world, and just have incredible will and drive to make things happen. Of course, they have to possess the prerequisite industry experience, proven track record, etc. but the intangibles often make a big difference. In the end, great people like to work with other great people.

I met with Dave Panos and Andrew Busey of Pluck yesterday to learn more about their product and their company. Rather than go into the software (which I really like btw, combination RSS reader, bookmark manager, and simple collaboration tool), I wanted to share some of our thoughts about consumer-based web businesses circa 2004. We had a nice discussion about why it was different to launch a web-based business in today’s world versus the bubble period. It was even more interesting considering that Dave and Andrew were on their third or fourth startups, depending on how you count. Our conclusion was that it is so much easier and cheaper to build a web-based business today than in the early days of the Internet. OK, I am being master of the obvious, but I am interested to see what else you can add to the list below.

1. Critical Mass
During the bubble period, the promise and potential of the Internet was all around us. However, the critical mass was not there. Today, we have critical mass, a number of users that are experienced with the web. We have real broadband penetration (although not as high as Korea, for example). This obviously allows any new company to actually build a real business with real users that can throw off cash flow.

2. Technology/Experience
In the early years, people did not have off-the-shelf components and open standards like XML/SOAP to build web-based applications. If you wanted to build a chat program, you had to build the whole thing from scratch. In today’s world, you can pull an off-the-shelf component from an ISV or from the open source community, Jabber for example, and have chat instantly integrated in your product. Additionally, the developers 8 years ago were pioneering new applications and a new language. If you combine that same developer who is now seasoned with better technology, you get a great headstart in building new products. What used to take months now takes weeks to build. What used to cost millions now now costs a fraction of that. We have more capability built into the browser. Pluck and Onfolio, for example, are built and integrated into IE instead of being a separate application. We have toolbars galore built into IE. It works.

3. Business models
Andrew stressed the other main point which is that we know what business models work today versus yesterday. Paid search didn’t exist years ago. Today it is a multi-billion market. Portals were nowhere close to profitable and today they are. Companies like Yahoo, Google, Amazon, and EBay have become big enough to build a business around-they have an ecosystem-they are the gorillas of the web and entrepreneurs can launch products around them. Additionally, we know how to reach users better and measure success. We are not throwing money away on stupid advertising campaigns. The smart and seasoned entrepreneurs now have more outlets for guerilla marketing (blogger community is a new and great one).

Remember the old adage that pioneers get arrows in their backs? Well, many early entrepreneurs did fail. Luckily, today’s entrepreneurs have the hindsight and ability to soak in all of the expensive lessons learned from the past. Now that is a tremendous advantage, one that will only get better with time.