Month: May 2007

Entrepreneurship

Transitioning from startup to growth phase – don’t be afraid of process

Posted on by Ed Sim

As an early stage investor and board member of several companies, I am fortunate to get the opportunity to work with some great entrepreneurs and also pattern match and observe trends, both good and bad, in early stage companies.  I am not here to throw platitudes at you but simply to share an observation of the differences between some of the better run companies and the ones that have less than stellar execution.   In one portfolio company, we had some of the standard issues of coordinating product management with engineering and balancing sales requirements with engineering priorities.  Having a company operate solely in departmental silos is like having each body part with a different brain-sure it is your body but it is also hard to move fluidly if each body part is moving in a different direction.  As I spent time with management, I quickly recognized that there was no real communication of company goals and awareness of what each department’s priorities were.  This is a standard problem I have seen time and time again as companies transition from startup and initial product development to company growth and expansion.  There is no panacea for turning things around overnight, but I can assure you that layering the proper amount of structure and organization is an important element in improving cross-functional communication.

What makes a startup team great early on in terms of getting product out the door and rapidly refining and honing the product from live market feedback can also lead to issues down the road if companies and employees are managed on a similar basis.  What is easy to roll out in a 5 person company gets harder to manage in a 25 person and even harder in a 50 person company.  Take the test – ask your key executives what the 3 key company goals are for the month?  Are they the same or not?  How will they help contribute in each of their functions to delivering on the 3 key company goals?  If they are not on the same page and you have trouble getting them together, you may want to continue reading for some thoughts on how to improve communication and accountability.

Here are some simple steps you can take to create a more fluid organization.  First, institute a weekly management meeting.  Yes, like you, I have an allergic reaction to the word meeting, but believe it or not, simple processes can help tremendously.  It is a great way for the CEO to get input but also guide the team to focus on the same company goals for the month or quarter.  Secondly, have key team members provide a weekly dashboard report and list of key goals to accomplish for the following week.  At every weekly management meeting, have each team member discuss progress against his/her team’s goals and what they will be working on for the following week.  How does each of the departmental goals contribute to helping the company meet its goals?  Once again, this all may seem simplistic and a giant waste of time versus managing the next product release, but you will be amazed at the number of companies I meet that have not gotten to this point and consequently seem to have different ideas of what the business is and how to get there.  In addition, having weekly management meetings and clear weekly goals with simple yes/no criteria goes a long way towards creating an action-oriented culture of getting results.  If a VP doesn’t deliver consistently, all of the other executives know and they also know it is time to make a change.  No one wants to be the manager that is known to overpromise and not deliver.  There is also a real difference between a manager having weekly individual meetings with their CEO vs. openly discussing theirr priorities and completed tasks with their peers.  With respect to cross functional communication, rather than complaining about engineering, for example, sales and marketing can now understand engineering priorities and what it may take to adjust and rearrange some of them to meet the revenue targets for the quarter.  Trust me, there are many more factors to a company’s success and failure, but please don’t make an allergic reaction to scheduled meetings and a simple lack of organization your cause for execution problems.

Digital Media

Internet Ad Frenzy – what’s next?

Posted on by Ed Sim

Wow-what a past couple of days!  First I would like to say congratulations to David Moore, CEO of 24/7 RealMedia, on the company’s pending sale to WPP Group for $649mm.  I first met David in 1996 when he made his move from offline to online advertising as my prior fund invested in the initial round of 24/7.  We have stayed in touch throughout the years and what has impressed me most about David is his perseverance, sticking with the company through a few near-death experiences, struggling to find cash to make payroll, dealing with a penny stock, and ultimately fighting and building his way back to this exit.  What kept David plowing through was the belief that the crash was a temporary blip and that dollars would eventually move online in a big way.  Looking back, one could easily say that is a no brainer, but if you lived through the bubble you have to remember how the Internet was a dirty word.  Anyway, Aquantive is another company that survived the meltdown and is now about to sell itself to Microsoft for $6b.  I am not going to dive into the metrics here, but let me say that I still believe we are just in the second inning of this shift from offline to online advertising and that we should start looking for the next battleground.  What is interesting is that 24/7, AQuantive, and Doubleclick make most of their money from the boring stuff like SEM and display ads.  If you talk to most of these guys they will have a small bet on mobile and broadband video but will clearly admit that when it comes to managing a public company and having to hit quarterly revenue targets, you have to listen to your customer, the advertiser.  This means that the video and mobile stuff will be big but it is still way too early in those markets.

With AQuantive, Microsoft will get advertiser relationships and a platform from which to build a real online business.  I still think that Microsoft needs a Yahoo or even an AOL to compete with Google but despite that here are some things I would do.  I would go small and focus on building its publisher base where Google gets over 1/3 of its revenue.  I would buy small/medium sized companies that offer free and premium web analytics, feed management and RSS Ads, and potentially even a blogging platform from which to offer MSN AdCenter at the point of creation.  Getting publishers on board will help Microsoft get more data on clicks, increase its revenue base, and also allow the company to build relationships and good karma with the next generation of Internet entrepreneurs.  It already seems that Google is ahead of the curve as it is rumored that it is trying to buy Feedburner, a leading feed management and RSS ad platform (I currently use FeedBurner to manage my RSS feeds and deliver RSS Ads).  Besides the mobile and broadband space I mentioned above, one other opportunity that is huge and here for the taking today is the television and cable advertising market.  Companies like Spotrunner and VisibleWorld (a portfolio company) are approaching the market in different ways but clearly offer advertisers tremendous potential to bring Internet like tools and business models to an analog market.

Digital MediaWeb/Tech

Second Life for Kids (continued)

Posted on by Ed Sim

The kids space is hot.  Techcrunch just reported on rumors that Montgomery and Co or Monty was working with Club Penguin on a sale to Sony for $500 million.  Montgomery is the same investment bank responsible for selling Intermix (MySpace) to NewsCorp and Grouper to Sony so they have been building a nice practice in the Internet and digital media sectors.  As for the price tag, $500mm is pretty big money (I have heard ranges of $250-500) but according to Techcrunch the company projects around $65mm in revenue with $35mm in profit.  No wonder why the company didn’t need my angel or VC money :-).  If most of this revenue comes from subscriptions at $6 per month or $60 per year for upfront commitments, using a blended rate of $65 annually, you get around 1mm paying subscribers (this is simple math and does not take into account growth and ramp).  Not bad for a company that was started by 3 dads.  As I mention in an earlier post, virtual worlds are hear to stay and there will be a number of acquisitions in the space over the next couple of years.  In my household, Webkinz has taken the top spot.  It will be interesting to see what Ganz, a privately held company in Toronto, does with this fast growing property.  I can think of lots of ways it can further build out Webkinz and also monetize the community without losing its appeal and innocence.

Web/Tech

Social Shopping (continued)

Posted on by Ed Sim

Congratulations to my friend Gary Vaynerchuk of the Wine Library for his acquisition of Cork’d (see Mashable and the Alarm Clock for coverage).  When I had dinner with Gary a few months ago we talked about how the next big opportunity for e-commerce was to weave social networking and blogging tools into the existing infrastructure to directly drive transactions (see excerpt below from an earlier post on social shopping).

The next step in this evolution of commerce will be social shopping or companies leveraging Citizen’s Media (blogs, podcasts, videocasts, tagging) to drive commerce.  According to Answers.com, "Social Shopping is based on the principles outlined in the wisdom of crowds where a large group of users can recommend products to each other and between them work out what to buy and which ones have the most buzz." I believe this is an interesting area that has not been fully tapped yet.  At the root of it, people want to connect.  Most people I know tend to check the Internet first to research a purchase and also ask friends for recommendations or reviews about products.  The more inefficient a market is, the more opportunity there is to educate consumers and peers leveraging the web.

While the Alarm Clock calls this a roll up in the wine space, I view this as the beginnings of the return of the 3 Cs (content, community, and commerce) with a year 2007 flair.  Speaking of the 3 Cs, I also noticed that Amazon bought dpreview yesterday, a leading provider of digital camera reviews and information.  Amazon acquiring a content site may sound odd but we must remember that one of Amazon’s competitive advantages is its huge database of consumer reviews. As commerce sites begin to recognize the value of content and community again, I wonder who is next on the hit list?

EntrepreneurshipWeb/Tech

What a Microsoft-Yahoo deal would mean for startups

Posted on by Ed Sim

The rumors of a pending Microsoft-Yahoo deal are out in the market again today (see NYPost and Techmeme).  Who knows if it will happen but rest assured if it did, Microsoft would be in a pretty good position to take on Google with Yahoo’s user and advertising base combined with Microsoft’s strength in development tools and aggressive strategy to go grassroots and emerge as the platform of choice to build next generation web sites and applications.  All that being said, let’s take a moment to think about what this would mean for entrepreneurs.

It is pretty clear what is happening in the market today – Google is dominating and the Internet advertising game is a game of scale.  The bigger you are the more opportunities you have to increase your lead – more users equals more data equals better targeting equals more money per click.  In addition with lots of inventory and excellent targeting, it is easier to attract more advertisers.  And as we all know, much of this whole Web 2.0 (yeah-I hate that term) world is based on advertising, advertising from Google AdSense and other partners.  Why not outsource your whole ad sales team as you can get a pretty good deal from Google without any operating expenses?  If you do the math, startups really do need a fair amount of traffic to merit hiring its own internal ad sales team.  Consequently, we have seen tons of web startups launch over the years as it is really cheap to build a web-based product and costs no upfront capital to start generating revenue. 

I am not sure about your own analysis but based on a number of portfolio companies, I can tell you that Google Adsense delivers the best results bar none in terms of generating revenue.  In a world without a combined Microsoft-Yahoo, it is pretty clear that Google will only get stronger leaving it with a virtual monopoly in the online ad game.  And as you know, monopolies over time take advantage of their position by changing pricing in their favor.  I am sure every company that is generating money from Google Adsense worries about the day when the revenue splits could change.  So on the positive side, a combined Microsoft-Yahoo would hopefully give startups another real alternative to Google Adsense as the combined entity would have real scale like Google and therefore the ability to deliver Google like results.  On the negative side, a combination would mean that there is one less aggressive acquirer on the market. So if the Internet ad game is one of scale, you can bet that in the future there will be a high likelihood of further consolidation. What this means is that entrepreneurs who are starting companies to be acquired better think twice as their chances of winning the lottery will diminish with time.  What this also means is that entrepreneurs need to start companies for the right reason and focus on building a real business versus the quick flip.

VOIP

Nice Try T-Mobile

Posted on by Ed Sim

OK, I am biased since I am an investor in Sipphone/Gizmo Project but this service from T-Mobile sounds pretty lame.  The "breakthrough offering" from this carrier is that you can make calls on your mobile handset and seamlessly switch between T-Mobile’s cellular network and your home network.  The catch is that you have to pay an extra $20 a month to use the service and you are locked in to using your home network or in the future a T-Mobile hotspot.  Unless you are making tons of international calls from home, that doesn’t sound like a breakthrough.  You are better off saving that $240 annually and using that to buy a Nokia n80 or n95 device which has dual mode capabilities but in a completely open format.  OK, it doesn’t offer seamless handoffs between cellular and wifi but it does allow you to make VOIP calls from any wi-fi network and all you have to do is buy minutes from GizmoVOIP which is integrated in the  phone.  In the near future consumers will be able to leverage the full power of web-based communications as presence, IM, and buddy lists get built into the device.  Once again, I know that carriers have to protect their huge investment in infrastructure, but how long will consumers stand for exorbitant pricing on closed networks?

Digital Media

Broadband video is hot…where are the advertisers?

Posted on by Ed Sim

There is an interesting interview in the WSJ today with Dave Rosenblatt, CEO of Doubleclick.  While talking about industry trends, Dave clearly lays out the fact that it is still early days in terms of broadband video advertising.

In general, video advertising as a trend is pretty firmly in motion. In spite of that, though, it is still very small. There are somewhere between half a million and a million search advertisers in the market, there are probably only a couple to five thousand graphical advertisers and probably less than a hundred video advertisers. There is no reason for that imbalance to exist. So one of our goals is to increase efficiencies with which people buy and sell video advertising and democratize access to the process in the same way that Google has democratized access to the search market…It is going to be easier to buy video advertising, and therefore many more people are going to do it.

I agree with the fact that buying and selling video advertising needs to get easier, but how do you monetize all of that user generated content?  On the making it easier part, I am sure Microsoft has been thinking long and hard about this market as it recently launched Silverlight, a cross-browser and cross-platform plug-in for rich media apps.  In addition it is offering 4gb of free hosting and streaming for its development community.  Think about how easy it will be for Microsoft’s developers to plug in Microsoft Ad center and some broadband video ads into their streaming content especially via an integrated offering tied into the development platform.  I am sure this fact is not lost on Microsoft as it looks to take on Adobe and also vie for leadership in the broadband video advertising market.  Sure Google has locked up search thus far but all of that potential broadband advertising revenue is still up for grabs. 

BTW, these stats on the number of advertisers is not all that surprising as it usually is the big advertisers with the huge budgets that will jump in first and explore new opportunities.  These numbers are also not all that surprising to me since my fund is an investor in Visible World.  As mentioned in previous posts, Visible World is bringing the power of Internet targeting to television:

While I have always been bullish about broadband video advertising, I have never believed that the $60b television advertising industry would disappear overnight.  In fact, before the Internet dominates all advertising why couldn’t one bring the tools of the web to the television world making TV advertising more effective, targetable, and measurable – in effect changing it from a mass media to a more targeted dynamic one.

What this means is that our advertisers who use Visible World can deliver dynamically changing television commercials based on any number of variables including the content, zip code, demographic, weather, etc.  Sure, lots of technology partners have continually stressed the broadband and mobile opportunities which are clearly building, but as Willie Sutton did, we are going where the money is today – helping that $60b spent on television advertising become more effective.  Sure broadband is in our sights and we can deliver that same video commercial or asset over any pipe whether it be broadcast, cable, satellite or broadband but the reality is that broadband can’t pay the bills right now.  In addition, I am of the viewpoint that the broadband video ad itself will have to be much different and shorter than your typical spot today.

So I agree 100% with Dave from Doubleclick (see Valleywag for more commentary).  For other evidence of the early nature of broadband advertising, I suggest doing some analysis and looking at where the bulk of revenue from other ad networks are generated.  Yes, you guessed it – banner display ads and search engine marketing.  Sure broadband has really high CPMs and trust me if these ad networks could build a huge business off of that today they already would have made some acquisitions but there just isn’t enough demand from their advertising customers.  As you guessed it, what that means is the market is still early and there are plenty of opportunities for innovative companies to help move some of that $60b spent on television ads online.