Web/Tech

Getting the real dirt

Posted on by Ed Sim

Jeff Nolan has an interesting post about how a US General views blogs as an excellent source for unfiltered information. Jeff goes on to postulate that CEOs could also get unbiased information from their field as well.

In the private sector it’s only a matter of time before CEO’s, at least the better ones, start figuring out that the best way to get the straight scoop on a topic is to drill down to the field by reading the blogs that exist within the company. Of course, this isn’t an entirely efficient process for an executive who probably already has too much on his/her plate, so the opportunity that exists from a tech standpoint is to aggregate blogs and apply BI techniques to sort, categorize, and apply qualitative filters to. I suppose you could make the case that this is what Technorati or Feedster are doing, but I’m not sure that’s what I am envisioning…. I’m going to need to put some more thought into this and report back at a later time.

This is yet another example of how the web is helping make inefficient processes more efficient, especially when we are moving away from a command and control world to one where empowered individuals or nodes on the edge make decisions. In this world, getting unfiltered information from the edge becomes more important. Rather than squelch his troops, it is quite nice to see that General Myers gets it and is embracing blogs as another data point for him. .

Entrepreneurship

Post mortem

Posted on by Ed Sim

I recently had a board meeting for one of my portfolio companies and was upset because during the sales pipeline review we only heard great things about the pipeline, new closed deals, and the possibility of beating our quarter yet again. What bothered me, however, was that we did not spend enough time discussing the big losses or missed opportunities. Evaluating losses is a great leading indicator for health in a business. If you can get to the heart of why you are losing deals early on, you can prevent big problems down the line. More often than not, management teams will do the opposite and revel in their victories and not spend enough time in defeat. Great management teams, however, will learn from their losses and missed opportunities – they will learn what went wrong and why to make sure it never happens again. This is like preventitive medicine – diagnose early before large problems arise. This, in my mind, is an important trait to institutionalize in a company. While hitting your quarter is a great thing, if you never take a proactive stance and do post mortems on lost opportunities, your competition will eventually catch up to you. Talk to the prospect and try to understand whether it was the process, the sales person, the product, pricing or competition. After a few of these data points, you will have a better view of why you lost and what you can do to fix it. I strongly believe that you can learn just as much from your losses as you can from your wins.

Open Source

Innovation is not dead

Posted on by Ed Sim

Here is another example of why commoditization is not killing innovation. In fact, it can and has given a number of companies a leg up in terms of developing and deploying new products in record time and at low costs. Using so-called commodity software and hardware actually does not kill innovation but speeds it up.

For example, Metapa, one of my portfolio companies, has begun shipping a software product (Metapa clustered database) that enables customers to deploy terabyte scale data warehouses on clusters of commodity computers running open source software. To that end, the company just announced a joint customer win and partnership with Sun.

In the press release, Jeff Mayzurk, VP of technology for E! Networks, says:

“Deploying a unified data warehouse has always been a strategic goal of E!, but with the total cost of ownership associated with traditional solutions, it hasn’t been practical. Metapa and Sun provided a truly unique solution allowing us to implement an enterprise class data warehouse with the price/performance level that makes our initiative possible.”

Dave Powell, CEO of Metapa, goes on to say:

Metapa and Sun are excited to announce E! Networks as a joint customer and a flagship example of how companies can capitalize on the performance advantages and operational returns of open source and commodity computing for data warehousing,” said Dave Powell, president and CEO of Metapa. “CDB leverages commodity computing, open source database technologies and breakthrough parallel processing algorithms to deliver unprecedented price/performance when compared to traditional, proprietary database solutions.”

To reiterate, commodity computing and open source software can enable breakthrough solutions such as what Metapa is delivering with Sun X-86 hardware. My hats off to the team at Metapa for making this happen. In addition, I love having an early customer win that is referenceable and with a partner that can help replicate this win in a big way.

Globalization

Global expansion

Posted on by Ed Sim

We are truly living in a global world these days. Many startups I meet with today are either taking advantage of offshore development or have pushed up plans to expand sales internationally. Given the broader scope of this trend, I have changed the category name Offshore Resources to represent a broader theme, Globalization. While taking advantage of a global economy is a great idea, it certainly can be disastrous for some companies. You can’t just take your existing blueprint for sales and R&D and adopt it in a foreign country. I mean didn’t we learn our lesson from the world expansion of the British empire? So if you are thinking about expanding globally, I suggest reading Jeff Nolan’s post on making sure you have local market knowledge. There are a number of great examples and issues that he outlines.

While you may think VCs only want to hear about your company using offshore resources and selling internationally, I am oftentimes underwhelmed by the naivete of some of the entrepreneurs about how and why they are expanding globally. For example, before doing business in other countries, I suggest making sure that you take care of your home market first. The US is a large market, the customers are closer, and the cost of doing business is lower. In fact, if you can have your first customer within driving distance that is ideal. Trust me, customers love knowing that you can show up at a moment’s notice to solve any problem. It is easier to keep a customer happy when you can show up in a half hour than in 24 hours. On the offshore development side, just think through why you are offshoring work and what kind of work you plan on doing in a foreign country. Over time, I have increasingly come to the conclusion that if you are going to do it, make the investment upfront to hire your own team. While the idea of using consultants to get to market quicker sounds attractive, the churn rate is way too high. The time and effort you put forth to train consultants becomes wasted when they jump ship and find a higher paying opportunity.

Entrepreneurship

We don’t like surprises

Posted on by Ed Sim

One of the recurring themes of dealing with VCs and boards is that we do not like surprises. In addition, tell us the facts, and if there are any negative surprises give us action steps on how you are going to remedy the situation. I have written about the VC/Entrepreneur relationship before and due to its importance will continue to write about it in this blog. Yesterday was one of those days where these themes kept surfacing in my conversations and email and I thought I would share a couple of examples with you.

In one meeting yesterday a VP of Sales candidate for one of my portfolio companies walked me through one of the biggest lessons learned in his first start-up experience – lay out realistic numbers and hit them. That means that if you do not have 100% confidence that you will hit the quarter, don’t pad your sales pipeline and wait until the end of the quarter to tell us about a potential miss. You are not doing us a favor by letting us feel like we are going to hit the quarter. Tell us as soon as you know – yes, board members can read between the lines as sales is a numbers game. In addition, explain the action steps you will take to solve the problem so it doesn’t happen again. To say the least, he learned alot from that first board experience.

Later in the day, I got an email from another portfolio company’s CEO outlining a potential issue with a key partner. Not only did I like the fact that he communicated with the board right away, but I loved how he included a detailed action plan to resolve the issue. This included securing a meeting with the decision maker ASAP. While all of us were concerned about the news and shared our own thoughts on the action plan, we all felt like we were doing all that we could to overcome the partner’s issues. In the end, I am sure it will work itself out, but it would have been utterly inexcusable if we learned about this after the fact.

Anyway, I hope these stories continue to hammer home the importance of working with your board in an open and collaborative manner. Look, bad things happen, but what gets a VC and board upset is not knowing soon enough, soon enough to potentially take corrective action.

Entrepreneurship

How startups succeed

Posted on by Ed Sim

If you ever wondered what it takes for a startup to succeed, please read the email below sent from the CEO of one of our portfolio companies to his whole staff. Sure, startups don’t have the cash, the people, the distribution channel, and brand to compete with the established players but passion, drive, and an insanely great product can take you a long way.

Dear team members:

I have always believed that the key reason for our continued success over the past few years has been, the contributions made by each and every one of you. Without your sincerity, commitment and hard work, we would not have become the #1 partner for Company X.

I want to share with all of you, an extremely powerful example of sincerity and commitment, shown by one of our fellow team members. I am sure that each one of you will feel proud of him after reading what he accomplished this week!

On Tuesday, July 13th, after finishing a bunch of very successful presentations in the Washington DC Area, John Smith (aka Mad Dog from his army days) took a flight for Memphis, TN where he had to do a presentation in the morning on Wednesday, July 14th. John had to change flights in Atlanta on the way to Memphis. Due to extremely bad weather on the east coast, his flight into Atlanta got delayed and he missed his connecting flight to Memphis. The next available flight to Memphis was the next day at noon, which would cause him to miss his morning presentation. So John asked the airline if they would reimburse him for a rental car to drive from Atlanta to Memphis, thinking that it would be a few hours drive. The airline agreed, so John rented a car and started driving to Memphis from Atlanta. John had been in touch with Dave when all this was going on, so after he started driving, Dave did a quick check on Mapquest and realized that it was a 400 mile, 7 hour drive and not a “few” hours drive as John had thought (it never hurts to be good at Geography!). But Mad Dog did not stop or turn around, he kept driving (with a few coffee breaks to help keep him awake at the driving wheel). He reached Memphis at 5:30 AM, rested for an hour at his hotel and went on to do his presentation – which was very well received. Folks, this story does not end here………..

John then took a flight from Memphis to Jackson, MS where he was scheduled to train 30 users for one of our major customers THROUGH THE NIGHT of Wednesday, July 14th! He got into Jackson, slept for a couple of hours and then went to the customers offices to conduct training for these 30 users from 10 PM to 5:30 AM! The training was extremely well received (I have received e-mails from the Company X Sales managers giving kudos to John for his quality of training that night). Today morning he flew from Jackson, MS back home to Dallas, TX.

John: I am very proud of your commitment and dedication to work. Please make sure you get some well deserved rest over the weekend.

PS: In the future, please call one of us from the airport to check how far your destination is, before you start driving!

Regards,

CEO of portfolio company

Web/Tech

Influencing the influencers

Posted on by Ed Sim

If I were a startup, one great and cheap way to build buzz and excitement is through the blog community. I call this “influencing the influencers.” Think about it – many of the more well known bloggers are also well known tech journalists, industry pundits, VCs, and technology executives. Forget about using the traditional PR route – if you can get these influencers to write about you on their highly targeted blogs, others will hear about it, write about it, and generate links to it. There has been much discussion about measuring the value of blogs but at the end of the day it is all about being influenced by a trusted source. Each blogger has his own unique audience that trusts his/her opinion. Many of us try and buy products and services based on trust and recommendations. This is no different in the blog community. A number of web 2.0 companies have already leveraged the blogosphere to generate buzz. Not that I am a big influencer by any stretch of the imagination but some of the new companies I have written about recently include Pluck, Bloglines, and Onfolio. And yes, there are many more influential people than I who wrote about these companies as well. I am quite sure all of these posts delivered significant name recognition, brand value, and traffic for the companies mentioned above. Once again, it is not about how many posts, but who posted that really counts because the word and links can spread quickly.

Along those lines, Om Malik is certainly a guy you want on your side. Here is a great post by Om where he writes about getting quantifiable evidence for the first time on his influence regarding a post on a new startup, Blinkx:

The blog was posted on a Friday, and by the Monday there were 5,000 links to it and people were discussing it all over the world. Since then, there have been 130,000 direct downloads, and many more through users swapping files. This week, the site – which is only launched today – has been recording 6m links or hits a day solely from word-of-mouth publicity.

That is pretty damn cool! Let me repeat – 5,000 links, lots of discussion, 130,000 downloads, and 6m links/hits all generated for $0 – yes, no money!

Investing/Markets

Subscription accounting

Posted on by Ed Sim

Ok, now for some boring accounting stuff. Red Hat (RHAT) recently restated its financials. Its auditor, PWC, suggested that it change its revenue recognition policy. According to a CBS Marketwatch article:

Under the accounting method used in the past, the company would recognize a full month’s revenue from a subscription agreement, even if a deal was sealed in the middle of the month, for example.

The effect of the accounting change is to defer a portion of the revenue that had previously been recorded during the month that the subscription started to the end of the contract.

So what it comes down to is a timing issue. In the example above, a full month of revenue gets recognized even only if the customer signed in the middle of the month. I don’t really think that this in and of itself caused such a huge selloff in the company. One could argue that the company is overvalued at a $2.8 billion market cap and a 20.5 TTM revenue multiple.

Anyway, I checked around with my portfolio companies which sell hosted software and it seems that we are taking a conservative approach by recognizing a set up fee in the month that we sign a deal and do the work and then begin recognizing the subscription revenue the following month. Anyway, while a boring and mundane issue, I believe this will impact a number of other companies in terms of revenue recognition. My general rule of thumb is to always have portfolio companies prepare for success – this also includes making sure our accounting is conservative and inline with best practices.

Open Source

On technology commoditization

Posted on by Ed Sim

If you ever wondered how Sun monetizes Java, I suggest reading Jonathan Schwartz’s (President of Sun) post on commoditization, standards, and Java. The crux of his discussion is that standardization and commoditization is not terrible as it inevitably opens up new market opportunities for industry players (just look at the railroad industry as an example). On the tech side, Jonathan believes it is mainly bandwidth that has been commoditized as opposed to a broader trend in software.

So I’d like to answer once and for all the question, “how does Sun monetize Java?” with a historical reference: the same way GE and General Motors have monetized standard rails, Vodafone monetizes GSM, banks monetize ATM networks, and oil and gas companies monetize the fact that my car can use “gas.”

The Java community, which we steward, drives a broad array of platform standards, among an even broader array of industry participants. That activity levels a playing field, that just so happens to be the single biggest playing field the technology industry has ever seen. The network is a commodity. We should all be celebrating.

In some respects, one could view commoditization as a bad thing as it is difficult to differentiate one product from another as they are easily replaceable based on price alone. However, what Jonathan is saying and what I agree with is that it is what you do with the commodity bandwidth, standards, and platforms that separates the winners from the losers. Sure, companies are all on a level playing field due to advancing technology and platforms. For example, with standardization, building new software and technology products and integrating them with existing solutions takes much less time and costs way less than ever before. Despite that, we continue to see innovation and new business models. The value just resides in a different layer. While Jonathan would like to believe that the creation and promotion of Java would soley benefit Sun, his argument is that it makes the market bigger for everyone, including Sun, so that is a great thing.

The one thought that could cause worries is that if you buy into Jonathan’s story of commoditization, the inevitable result is that the industry will consolidate leaving only those with scale and monopoly power to survive. Just look at the examples from his post – GE, GM, Vodaphone, and banks have benefited from standardization. Well, those are all big guys. In my mind that’s ok, as consolidation will be a long time coming as we are in the very beginning of this commodity movement in the technology space. Sure certain markets are in more advanced stages, but overall as an entrepreneur and venture investor you will have plenty of chances to make your impact. Remember, as markets commoditize, new opportunities will continue to arise, huge ones that we never even thought of today.

Web/Tech

Another day, another high profile blogger

Posted on by Ed Sim

Another day, another politician or high profile executive launches a blog. This time it is FCC Chairman Michael Powell and Sun’s Jonathan Schwartz. According to Michael Powell, he decided to blog because he wants to interact direcly with his constituency, creating a dialogue and urging Silicon Valley to get involved. He goes on to say:

One reason I am participating in AlwaysOn Network’s blog is to hear from the tech community directly and to try to get beyond the traditional inside the Beltway Washington world where lobbyists filter the techies. I am looking forward to an open, transparent and meritocracy-based communication—attributes that bloggers are famous for! Regulated interests have about an 80 year head start on the entrepreneurial tech community when it comes to informing regulators what they want and need, but if anyone can make up for that, Silicon Valley can. This is important not just for Silicon Valley—it’s essential to insure that America has the best, most innovate communications infrastructure.

Both Jonathan and Michael are launching blogs to stay close to their community. What I find interesting about these blogs is that one chose to leave comments open and the other chose to not allow comments. As I have said before in an earlier post about Why I Blog as a VC, it is the 2-way interaction and instant user feedback that makes blogging so valuable for me. I am curious to see how Michael Powell handles the comments on his blog and to understand whether or not he is truly trying to create an “open dialogue” or if he is just blogging for PR value. As for Jonathan, I really believe he is missing out by not opening his blog for comments and allowing his readers to turn his post into living, breathing ones.

Now that high profile executives and politicians have bought into blogs, I am still waiting for product companies to use citizen’s media (blogs, RSS, etc.) as Jeff Jarvis calls it, to create true interaction with their customers. I am not just talking about using RSS to subscribe to a Top 10 list of products sold for the day or week or to update customers on an upcoming product release. What would be great is if product companies could figure out ways to use this new medium to build long-term relationships with its customers, to create ongoing focus groups for a product or service, and to collaborate with customers on product development. Another great way for product companies to leverage this medium would be by allowing me to create custom RSS feeds/stored searches on the fly for certain products or services. Sure, I can do that via email, but the interesting aspect is having it all aggregated in one place using an RSS reader. Rather than have my own custom newspaper like I do today via Bloglines, I create my personalized store, amalgamated from a number of different sites and covering different categories like automobiles, electronics, and even restaurants – basically anything I am in the market for today based on the parameters that I set whether it be price, type of product or service, available appointment, etc, That would be a pretty cool use of RSS.

UPDATE: Regarding product weblogs, check out the Skybox blog from Maytag (yes, Maytag) via Scobleizer. I applaud the folks on the Skybox team for doing this as they even say:

In fact, that’s a great segway into a question, or plea for help if you prefer. There are not a lot of companies who are leading the way with product weblogs. I’ve not found much in the way of examples for a company who is trying to evangelize and support a hardline product through a weblog. There are some great weblogs for software programs and online activities, but not a lot for products.