Keeping Things In Perspective

"There is no class so pitiably wretched as that which possesses money and nothing else."


         — Andrew Carnegie

The world of the entrepreneur or investor can be all consuming. Unchecked, our life becomes one of chasing one task list and fire drill after another. Unless we take the time to step back and look at the larger picture, we will lose perspective. This also means we often focus not on what is important, but on what is most urgent or troubling. We will also put importance on those things which really have no meaning to us in the long run.

When I was a kid, my friends and I would joke about our parents’ efforts to get us to finish our meals (the old "kids are starving in India" bit). In reality, there was some truth (though no effectiveness) in all of this. We had moved so high up Maslow hierarchy that we no longer strived for food or water but got ulcers over what clothes made us fit in or who was invited to what parties.

A friend, Whitney Tilson, wrote a quick blurb that does a great job laying out this contrast. While he is a successful hedge fund manager, his family lives in Africa, helping villages over there cope with life.  He writes:

The New York Times sometimes captures our world  with such clarity and brilliance that there is nothing more to add. Of course,  much of the time, it’s completely inadvertent.

These two articles ran yesterday, the first from  the front page and the second from the front page of Thursday  styles:

Africa Adds to Miserable Ranks of Child Workers In sub-Saharan Africa, more than one in four children below age 14 works, and some are not even paid.  A boy named Alone Banda works in this purgatory six days a week. Nine  years old, nearly lost in a hooded sweatshirt with a skateboarder on the  chest, he takes football-size chunks of fractured rock and beats them into  powder. Lacking a hammer, he uses a thick steel bolt gripped in his right hand. 

In a good week, he says, he can make enough powder to fill half a bag.  His grandmother, Mary Mulelema, sells each bag, to be used to make  concrete, for 10,000 kwacha, less than $3. Often, she said, it is the  difference between eating and going hungry.

Fashions Aims Young  Premium jeans, for instance, an item coveted  by Maisy Gellert, a third grader living in Westchester County, N.Y. "I’m very  particular, Maisy said. Sevens are the only jeans I actually wear."

Like many girls her age, her fashion antennae  are finely tuned, her standards exacting, her desires well defined. "I like  the stuff that’s in style, like leggings and shorts, tank tops and  flip-flops, she said, promptly adding to that list: Gap camisoles that are  white, because I can wear them with just anything. Puma sneakers, pink and  gray — I’m on my third pair — and ballet slippers, but those are hard to find  for my size foot."

New Poll

Linked In has become the leading networking tool in the business community. How do you leverage it (and do you even use Linked In)? Vote in right rail!

On the last poll, 60% of you thought market drove success more than management (40%).

Buzz: Google Coupons

"All the consumer needs to do it take 15 seconds a day to…"
    — many a dead internet start-up hoping for consumer behavior change

Consumers don’t always behave in the most efficient or logical manner. Many a start up has gone under waiting for the consumers to see the light and change their daily routine. Unfortunately, for most, people don’t like to change their routine and the best solutions involve interacting with consumers while they are doing something they are already doing. Online couponing has been one area that has always held significant promise but failed to deliver.

Online coupons have been an elephant graveyard for the tech
world. You would think that this would be much more useful for
traditional coupon clippers. Tell a service what you like and have it
deliver the relevant coupons to you (web, email, stored value card,
etc). Alas,
C
oolsavings,
CouponSurfer.com, Coupons.com, CouponBar, eBates, eBay, Entertainment Book, Eversave , Keycode, Valpak.com
have all tried to crack the code but to no avail. It seems that people
don’t want to go through the effort of setting up preferences, visit
their account (or get emails), print them out and take the coupons into
stores. Too much work. They prefer to clip the coupons out of the
circulars.

Google has addressed many challenges in one clean strategy. It will
let businesses offer discount coupons if they use the Google Maps
service. This is a direct assault on both the coupon and yellow pages
business. The benefits are the following:
1) higher redemption/use: consumers are indicating interest when they look up a business or address on the map.
2) adoption:
unlike other coupon sites, it does not require the consumer to change
behavior. They are already browsing for the location and this pops up.
Like with their search ads, this is taking advantage of the consumer
self-identifying interest.
3) more search $’s: Google is
betting that users will increasingly use their local search if they
know they will likely get discounts on products at those stores.
4) more ad $’s: Businesses may spend more money promoting their coupons through the Google ad network.

5) kick-starts local search: Google’s local search business has had limited success to date. This has the potential  to get this scaling much more rapidly.

I
have been waiting for someone to figure out how to get online coupons
to work. Current models have been to invasive and require too much
effort on the users part. In addition to being much more straight
forward, this system is also…free to both consumers and businesses.
Looks like another marketing sector is feeling the wrath of Google.

CS 101 Part II…Burn, Vijay, Burn

It is the little things that happen in passing that can dramatically impact a brand. Vijay Singh is a walking example of this as discovered by my son.

Ever since Vijay Singh boycotted the Colonial several years ago when the PGA let Annika Sorenstam play in the men’s draw, my son has disliked Vijay Singh, the famous player from Fiji.  Maybe it is a cultural thing or a tough upbringing, but he is a grade A asshole. We usually go to the practice day(s) of the majors so he can run around getting player signatures on his pin flag. He has amassed more than 80 signatures over the past couple of events including Ernie Els, Sergio, etc. These guys are awesome. They talk to him (and others), sign the flags and really engage.

At the recent PGA Championships here at Medinah, my son was waiting between the parking lot and the clubhouse as players came off. Most players nicely said they were going to get ready but would be back out to sign. They know their sport depends upon a) its fans and b) the next generation to come up behind them, inspired by these role models.

Vijay came out of the parking lot, but instead of heading to the clubhouse, went under the rope and started walking out towards the putting area (but through the public pavillion). My son, for better or worse, found himself in Vijay’s direct path. Vijay looked at him (a small blonde haired, blue eyed boy with a pin flag and a Sharpie) and simply said in an angry tone, "Get out of my way" and nearly ran him over.

My son didn’t really want the signature for fear that it would ruin its value… That said, it will be a long time before the McCall’s buy any Cleveland Golf product (Vijay’s sponsor). Ironically, he is the only Private Equity sponsored player on the tour that I know of (Forstman Little). That could explain the huge tube shots FL suffered a couple of  years back…

Customer Service 101 — Part 1

Two incidents this weekend drive home the importance of customer culture and service. If you start to displease your customers on a consistent basis, viral effects make customer acquisition exponentially expensive.

On the first front, my Vonage saga continues. We have requested to switch our primary number back to AT&T. AT&T says it is all Vonage’s responsibility and Vonage says they have given the request and number to the "third party" carrier who now controls the process. Both are losing serious points here. This has been going on for five weeks and our services keeps fading in and out. I hope my marriage survives this.

Vonage now has someone who is poisoning the waters whenever and wherever. it is a personal mission to prevent other unfortunate victims from this fate. I think this company is toast…I don’t know of anyone who has had a truly exceptional Vonage experience and a lot who hate this firm.

In their race to get big, they forgot the first two tenants of business…make a product that works and give the customer a rewarding experience. They have the unfortunate antithesis which is throw it out there even if doesn’t work and pound the channel with marketing dollars. Each new customer (who inevitably has a bad experience), actually weakens the brand/company versus strengthening.

Lesson to all: while it is critical to get your product out in the market early, make it simple and bullet-proof (think iPod) and let your customers evangelize. If you put out crap, you will have to spend 2-3x on sales & marketing to overcome the bad references and noise from your customer. This cost grows exponentially (network effect) as more and more affected customers hit the market…this is true flu-like viral marketing at its worst.

(BTW, don’t get Vonage!!!)

Venture 101: Where Do VC Firms Go to Die?

“The Dead Body That Claims It Isn’t: I’m not dead.
The Dead Collector: ‘Ere, he says he’s not dead.
Large Man with Dead Body: Yes he is.
The Dead Body That Claims It Isn’t: I’m not.
The Dead Collector: He isn’t.
Large Man with Dead Body: Well, he will be soon, he’s very ill. “
— Monty Python and the Holy Grail

Where do VC firms go to die? What does this passing look like (and can entrepreneurs pay to watch)? You are seeing quite a few firms going out of business, including a number of prominent ones like Worldview and now Crescendo. In the PE Week Article: Crescendo Ventures…To Raise or Not to Raise, the article lays out why it takes so long for firms to go under. Worth a read to see the inner workings of the VC world.

Venture funds are 10 year vehicles normally with a couple of one year extensions. The GP’s can invest, normally, for the first 6 years and then harvest after that. It is not until the 6th year, usually, that the management fees begin to decline (go from being based on the committed capital to being based on remaining cost basis of the portfolio). Firms generally try to get their next fund up and running with a new set of management fees before the old fund’s fees start to decline.

However, in an environment such as this one, many groups deep sixed their 1999-2000 funds, and have not had enough realizations on their 2001-4 funds to get LP’s excited about supporting their next effort. The IPO market has languished for years and it is taking longer to ramp businesses up to acceptable revenue levels for exit. Plus, with some sector overfunding, there is an oversupply of acquisition candidates in many spaces (buyers’ market). So, the 1999 and 2000 era funds are seeing managment fees drop. Many groups are looking at cutting overhead (staff) to make due while also seeing if their portfolios are salvageable. Some, like might be the case with Crescendo, decide not to raise another fund (can’t salvage the last two funds) and the partners go their separate ways.

All Good Dogs Go to Heaven…not certain what the case is for VC’s…

Bootcamp: Are Patents Useful?

"Patents are like nuclear bombs, you just got to have some.  I have never seen patents make a business, but I have seen lack of patents hurt a business on many occasions."

     — Fred Wilson VC Cliche of the Week

Entrepreneurs often ask me about how useful patents are (and for what). Many business plans have some claim ("we have seven patents issued on our process") in their "Top Reasons to Invest" list. (It usually sits below "we have no competitors" but above "our market is $10B and the financials are conservative").

I think Fred, a fellow Feedburner investor, sums it up quite well in
his post (as usual). Wikipedia also has a nice overview on the patent
topic in its Patent Entry.  Having seen patents in action across a broad array of industries and companies, I would generically say that patents are useful defensively (e.g. preventing you from getting sued) but have challenges offensively (e.g. using to keep competitors out). I would also differentiate between patents related to software and services versus hardcore material science.

In hardcore scientific applications, patents can play a very key role in keeping competitors at bay. Our company, Imago, has a series of patents around Local Electron Atomic Probes (I won’t digress here as I am certain you are all familiar with the field 🙂  ). These patents have been very effective since they cover the key approach and processes regarding this type of imaging technology. There are few alternatives, so most players are limited in what they can do in this field. This is an example of a key blocking patent. However, it is effective because nature has presented few alternatives in the law of physics to this approach.

That said, even in this realm, they can fail to work. We had one company with $15M worth of patents (covering some 140 claims). It was a massive portfolio. Two global 100 companies, determined to enter the space, managed to create solutions that circumvented nearly all of them.

There are very few situations where such a toll bridge exists. In services and software, there are often many bridges onto the island. Process patents, in particular, while they can create speed bumps, can often be circumvented by slight tweaks to the process used. Additionally, even if you come across an infringer, it is extremely costly and time-consuming to litigate. Instead of building your business, you find yourself dragged into legal procedures. It is even more daunting if the infringer is a large corporation. For every Blackberry decision, there are hundreds that either settled early or were driven out of business trying to finance the challenge.

The downside of patents is that they disclose your secret sauce to the world. If your product takes time to ramp into the market (getting channel partners signed up, etc), your competitors will have time to reverse engineer your product. Several of our companies have filled patents on various aspects of their businesses but have kept their "secret sauce" out of the patent filings, electing instead to treat them as trade secrets (good entry in Wikipedia on Trade Secrets). Trade secrets have no expiration, but, if discovered, do not provide the limitations on use that patents do. One of the most famous "Trade Secrets" is the formulation for Coke. Keeping it secret is the challenge which is where rigorous use of Non-Disclosure Agreements, Non-Compete’s, IP management strategies (keep the components of the IP separated so even if one piece is discovered, it is useless), etc.

You also have to figure out where you want to file your patents and how much to spend. You can file in the US, in Europe, Asia, for individual countries, etc. At $10-25k per patent (and up), they are not cheap. Filing under the PCT (Patent Cooperation Treaty) buys you additional time to file in other countries without incurring the patent fees today.  Filing just in the US protects you against US competitors or foreign competitors that want to sell in the US. However, it does not cover foreign competitors selling overseas.

So, what is my conclusion? Patents are expensive and complex so get good counsel. Patents won’t like keep competitors out at the end of the day (nor create foundation upon which a company is built), but they will create speed bumps and help prevent others from suing you. Investors will give patents some value, but generally they will be looking to execution, management and business model much more. So, don’t expect to wow the crowd with your patent portfolio.

Buzz: Zoominfo Tool

For a venture capitalist, I have a pathetic memory. I can never remember names of people of meetings from even the day before. I cling to my Blackberry (searching calendar, to do’s and email) for my institutional memory. I have limited ROM and use all of these means for scalable RAM.

A very cool product in this realm is Zoominfo (www.zoominfo.com). It spiders crawl bio’s, board listings, etc to pull together, in an automated fashion, consolidated profiles on individuals. It is the largest player in this space and has more than 30 million people summarized in its database. It pulls together the work history, education, current position and other affiliations of these people.

This is very useful if you are trying to remember where someone worked, want to know the background of someone you will be meeting or simply want to know someone’s title for a pitch. It is a very useful sales tool.

Its parsing technology is pretty good though not perfect. If you type in Matt McCall (I am pleased to see I am top of the list!), you will see my education and work history. It also has a number of my board positions though it missed a bit by putting me on the Motorola, Tellabs and Boeing boards (confused by my fellow Atomworks board members).

It was started in 2000 under the name Eliyon as an executive recruiting tool and has spread from there. Check it out…

AOL: When It Rains It Pours

"The utter stupidity of this is staggering"
       — Michael Arrington, TechCrunch article

When it rains, it pours at AOL. It is becoming a fantastic case study in how tech companies can go wrong. I only pray that they can save the brand. Couple of quick points:

1) read the tea leaves and respond to industry changes aggressively
2) the customer is king. Make the customer happy (profitably) and the rest takes care of itself.
3) take your customer feedback as gospel (no "the customer doesn’t get it…")
4) your strategy is flawed if you have to resort to strong arming tactics to maintain customers.
5) big companies have trouble maintaining innovation and agility.
6) all it takes is one or two really bad customer experiences to undermine a franchise. (avoid public embarrassments on the Today Show!)

Instead of heavy prose, here is the meaty gossip.
AOL Consumer Data Leak AOL just acknowledged that it released the search history on 20 million web queries from 650,000 AOL users. In addition to violating the customer’s trust/covenant with the company, it is also going to unleash a fire storm both in the courts (ambulance chasers are popping the champaign corks today) and in Congress (round 2 on consumer privacy). It also slams the firms already sunken public image.
NBC Ferrari Call AOL has rolled out a customer retention program that relies on customer service agents to convince, obstruct or cajole users from canceling their service. This Ferrari video recording is impressive even by most call center standards. Not working. In June alone, they lost 1 million subscribers. This is one reason they went to a free model, supported by ads.
Even dead people can’t escape AOL Retention part 2…a St. Louis women has fought for 9 months to cancel her deceased father’s account.

This is the nightmare realized by a large tech corporation as well as small ones. Once the blogosphere gets hold of something, it spreads like wildfire. The blogosphere is amazing for its customer acquisition efficiency but it also has this dark side. If you query "Ferrari AOL customer service", you get 330,000 hits. That is a lot of coverage on the story (granted not all are on this story).

Kyptonite had one of the most blatant example of a brand being mashed by a) dumb PR and response and b) the efficient blogosphere. Several years ago, someone realized they could pop a Kryptonite lock with a Bic pen. They wrote the company and it responded defensively and negated the claim. Spurned, the customer made a video and released it showing how the pin tumbler mechanism was susceptible to failure. This spread like wildfire. Not only did it create significant damage at the time, these posts are permanently on the web. Today, if you query Google on "Kryptonite locks", half of top 10 or 20 listings are about this incident. It even has a Wikipedia entry.

Here is a link to the recent AOL article in its entirety:

AOL on Monday admitted exposing the personal search
data of 658,000 people, and issued an apology for what it called a
"screw up."


AOL, a unit of Time Warner Inc., made the information available for download through
its research site.
The people were randomly chosen among users of AOL’s search engine from
March through May. Each record was stripped of the person’s screen
name, which was replaced with a number.