Hire your customer. Bring them into the fold. Put them in PR, development, sales and customer service. Vacuum every voluntary offering you can get from them. Engage them, listen to them, excite them.

Web 2.0 is about people, communities and coming together. This has many faces whether it be open source, social networking or viral marketing. The old model was about very structured channels and processes around communications. It was top down and started at the company and pushed its way down to the customer. Sometimes, the customer even communicated back if they could find a way.

Fortune ran a great article on viral video  recently which laid out the strengths and issues with viral marketing, especially video. They discussed the Smirnoff Ice Tea video which has been viewed more than 1.3 million times. This exposure is worth millions of dollars and creates personality around your product. The caveats are somewhat obvious: no one knows what makes one video a hit and another a flop, you don’t have control over where or how it gets consumed, you lose some of the spin control.

I have been a big fan of open source for a while, going back to before our guys funded SugarCRM. Open source is really about a battle of communities. Each segment has its various projects, each vying for the attention and engagement of the development/customer communities. At some point, one of the projects begins to pull away (MySQL, JBoss, SugarCRM) and the movement is off and running.

I love Neuros guys here in Chicago. Collin Anderson and Joe Born are scrappy, creative serial entrepreneurs whose latest effort has resulted in the Neuros MPEG4 recorder which has the media companies all twisted up. They have opened up the code and released it as an open source project for users to hack and contribute. They say on their site:  "We created Neuros to stand for three things: openness, community, and innovation." Kinda sums things up nicely.

Some of customers they hired:
Development: they sold 25 alpha units (literally couldn’t record without crashing) online to their developers who then tested, hacked and pounded away at it. Not only did this help refine and bullet-proof the product, developers also came up with a variety of hacks for product features they had either not thought of or had the time to focus on.

Development part2: they offered Neuros bounties to their development community for very specific features that customers had asked for.

PR: they went to their community and select sites like Gizmodo to drive attention. In seven days, their blog coverage had over 200 dedicated blog posts on just the release of their beta product. Not big by Google or Apple standards, but large on the basis of a start-up with a niche product. Some of these sites have 10,000’s of readers.

QA: they sold 250 beta units to their community for beta testing to get any remaining bugs out. In addition to generating loyalty and evangelists, they are also getting paid for voluntary QA.

Each business is different and many obviously aren’t candidates for open source or social networking. However, the companies that are going to scale exponentially, like Youtube, leverage community to fullest. So, go out and hire your customer…

There is nothing more magical and mystifying than the fine art of pipeline management in a start-up. In many cases, a monkey throwing darts at a dart board would have more accuracy than the company’s sales team (hmmm…might have an idea there). The problem is that accurate revenue visibility drives activity across the entire company ranging from hiring/firing, infrastructure investments and fundraising. However, it is a slippery black box. CEO’s go through the annual process of setting plan and then grind through monthly reforecasting as the year goes on. While this is an imperfect art at best, here are some best practices from our portfolio companies.

1) Pipeline Monitoring: this sounds basic, but it is essential to get the right tools in place to monitor and drive your sales team. This includes tools like Salesforce.com, SugarCRM or even Excel. More importantly, it is the processes and disciplines that you put on top of these tools that are critical. I am a firm believer of not just showing the handicap bucketed sales candidates by month (90%, 75%, etc) but also using color coding and such show a) upward and downward revisions (by customer) in dollar amount and b) delays or accelerations in timing of closes. Most firms just pump out the static shot of their pipeline. More valuable is the movement in this snapshot from the previous month for trends.

2) Gap Analysis: compare your monthly, handicapped forecast to your plan. I suggest using only leads that are ranked about 70% in the calculation since having $10m worth of potential leads at a 25% probability is not really a likely $2.5m month. However, $3m worth of 90%’s are. Too much fluff low down as sales folks just throw down names they are talking to. Attached is a sample pipeline

that a number of our companies use (Download pipeline_tracker_sample.xls

)
. As a rule of thumb, you want to have a 3 to 1 ratio of handicapped prospects to budget for any given month.

3) Realism: too many pipelines are simply wish lists with limited connection to reality. Look at historical experience on customers regarding time to contact, time to pilot, time to full deployment and assume that this will remain constant. Flag the key indicators (sending out RFP’s, have identified funding source/budget, have champion, etc) and determine which are your best predictors (and which sales methodology works best for you). Assume the law of 2…twice as long and 1/2 the amount. I am a fan of looking at the pipeline from 6 months earlier. How many of the deals closed as expected in terms of time and amount? One quarter of your 25% deals and half of your 50% deals should have closed. If not, redress your forecasting or, see if individual salesmen are off and work with them.

4) Accountability: evaluate the accuracy of estimates/handicaps by salesman. Is the issue impacting across the company (change methodologies, tracking variables. etc) or is it specific to a handful of reps (work with them individually, involve other salesmen,etc). If they continue to mispredict and underperform, prune quickly.

5) Reduce the friction/cycle: the longer and more complex your sales cycle, the more difficult it is going to be accurately predict the future. Accuracy decays exponentially with time. Find ways to get "light" versions of your product/service into customers’ hands, including pilots. Strip down the implementation process to be as rapid as possible. Address key delay factors in your product that keep holding up sales or pilots.

While pipeline forecasts will never be easy nor accurate, there are a lot of things you can do to greatly improve your process. Too many firms assume that it is a blackbox and take misses to plan too easily/lightly. Monitor, add accountability, analyze and adjust constantly. Either that or pay up for some quality dart throwing monkeys…

Everyone will go on, song and verse, about how important people and hiring the right additions are. However, when you push a little deeper, you realize that this is the largest blind spot for new entrepreneurs (and many vets).

Recruiting is the biggest black box. How do you find and hire the right team members? Unfortunately, there is no set playbook since every company I have been involved with has approached this from a different angle. Here are some of the best practices I have witnessed:

1) The A Philosophy: Marc Andressen said it best…”A managers hire A lieutinents and B managers hire C lieutinents” because they are threatened. Layout the core elements of your culture and your key success differentiators. Make certain that culture is maintained and the factors dramatically enhanced.

2) Take Your Time: this leads to point two. Be deliberate in your hiring process. You will feel an incredible pressure to get positions filled. However, you are making a covenant with a new hire and the rest of the team when you bring someone on. Settle for “good enough” and a) you will get C-type hires below them and b) will suffer a very disruptive process should you have to unwind them, their hires and their strategy.One simple test…if you feel comfortable giving a major project to your lieutinent and have confidence it will get done perfectly without your intervention, you have the right person. Too often, you will have a deep dread about this and either get pulled back in or find it necessary to intervene (just make certain this isn’t you being a control freak…). If you are cleaning up a lot, you have the wrong person. Listen to your gut.

3) Spread the Net: the key to recruiting is getting a wide funnel set. Your best source of leads will be your current employees and close friends/advisors. Continue to build this out and leverage it for help. One of the simplest strategies is to offer a $1-3,000 bounty to employees for sourcing new hires. Figure out the best potential firms to raid from in your world and network (and have your employees network) aggressively into them. Use trade shows, business deals, etc to get to know as many people as possible. Dice, Monster and such are fine, but generally lack the quality you need early on for impact players. These candidates are often out of work which is usually not a good sign.

4) Delegate: the other side of the coin is that Founders often do not bring in the right lieutinents in early enough. They feel a need to have a finger and control in all aspects of the business. There is either a dread to increase burn (good thing) or a guilt about passing on core responsibilities (bad thing). Be careful about burn, but also make certain you have the right lieutinents in place early enough, especially in areas that they bring skills that you lack but need. Start the process early and it will give you the luxury to be demanding.

5) Cut Bait: give your lieutinents clear goals and milestones, give them the resources they need and move quickly when it is clear they are unable to deliver. The start-up is too fragile to act as a training ground at the senior level. Too often, entrepreneurs are too patient with underperformance and it eventually brings the firm down.

6) Let them Shine: if you have hired the right people, let them become the face of the firm. You will cover more ground and build more resilient managers. Divide and conquer on the speaking circuits, the interviews, etc. Let the world know about the depth of your team. You obviously don’t do this if they are not strong enough to doo this (however, this fact indicates if you have brought on the right players).

6) Pass the KY: runa rigorous diligence process. Have candidates meet all core managers and potential direct reports. Culture is key and you want to make certain new hires fit in or things will likely fail for non-performance reasons. Also, listen to your (and your team’s gut) on hires. If something bothers you, it won’t go away and will usually fester into a cancer.

While entrepreneurs will pay lip service to the importance of recruiting and hiring, many, if pushed, are unable to layout the process, culture and specific criteria for key hires beyond rather generic answers. More importantly, the most frequent error is in hiring the “good enough” person because you have either not been demanding enough in your specifications or been to rushed in filling the spot. Wait for the right pitch before swinging.

"I didn’t want to repeat my parents’ life. I saw in their lives a routine and a lack of dreaming, a lack of the possibilities, a lack of passion. And I didn’t want to live without passion."
     — Hugh Hefner

What makes an evangelical entrepreneur. He/she is a staple image of the technology world. They are everywhere, willing new worlds into being…Gates, Ellison, Jobs, Sergey & Co, the list goes on. For most entrepreneurs, day to day existence is much more practical and mundane. What drives this difference and what is the dangerous other side of that coin?

I came across the idea for this post in church this past Sunday. The sermon was on "Which Excellence" and started by diving into the escalating issue we all, as parents are facing…the race to the lowest denominator in which we uber-program our children earlier and earlier. A local Winnetka Wall Street Journal writer is quoted as saying:

"Every weekday morning this summer I have dropped my granddaughter off in front of the New Trier High School, in posh Winnetka, Illinois, with a slight feeling of depression…Yet I feel a slight sadness when I contemplate their (students’) energy, their too-early-in-life resume building, all devoted to a path of success set out for them by others."

He goes on to talk about the Lutheran and Puritan work ethics that drove the initial creation of the country (matched by equally disciplined ethics from other religions and cultures over time). "Americans have always worked harder than everyone else, believing that their identity and self-worth depend on it." Entrepreneurs have this in spades as they are one step ahead of the undertaker in the dog-eat-dog worth of technology.

Hard work, discipline, maniacal focus are all key to successful entrepreneurship. However, evangelical entrepreneurs have something else, something that shields them from the daily grind and frequent disappointment. They are driven by a deep care, passion and moreover, often, love for what they are doing and, better yet, hoping to achieve.

Before you cast off this post as another 20,000 ft high touchy, feely drabble about passion, let me be specific. I am not saying that you need to be passionate about what you are doing because you likely are. I am saying that you need to be clear about what it is, exactly, that is the heart of that passion. Why did you jump into your current endeavor and what is the impact on the world that you hope to leave? Remember this, write it down and revisit because, just like the high school senior, as you get into the bowels of execution, very quickly it will become about small tactical achievements. It will become about amassing a resume of pseudo events and successes…many being defined by others. Inevitably, you will lose sight of what originally got you into the business to begin with and it will become about closing the next customer, getting the next press release and trying to make as much money as possible.

The issue here: just like with our kids, you risk burning out, losing touch with yourself and ending up winning the battle and losing the war. My simple advice is to care. Care about what you do. Care about the impact your business has on the world around it. Care about your employees. Care about your family. Care about helping others (you can still "care" about crushing your competition also…). Remember what drove the initial passion and why your cared about it. Most entrepreneurs, within a matter of a couple of years, lose sight of this. You can see it in their eyes. They have lost the Northern Star and are just grinding it out. They have little resilience and often, at this point, they burn out. They can often grow bitter of the "lot" that fate or the market cast their way. This does not need to happen if you continually revisit, remember and refresh. That Northern Star will drive others to see you more in an evangelical role than as a grinder.

Of course, this still leaves open the question about our kids and what society (and parents) are doing on that battlefront. I am torn daily between pushing my kids as hard as possible to succeed in an increasingly competitive world and letting them set their own pace and appreciation for what they do and what they care about. But, alas, that is for another post…
 

Entrepreneurs have heard an array of warnings about the VC dark side. After toiling to build a business, it is snatched away by the investors. However, few can point to a specific example. I’ll try to forward on examples going forward with the goal of showing that often, these stories are a two person dance (not just one evil one).

The following link, Accel and Levensohn Get Rapt lays out the details of a current lawsuit regarding such a case. Daniel does a terrific job, as usual, laying out the specifics.

The key takeaways for me are:
1) If you raise a considerable amount of institutional money and yet, over a period of time (years), are unable to deliver results, bad things will likely happen.
2) If you have run the business such that no new investors are willing to come in (and even some existing ones don’t re-up), you a) are very vulnerable and b) have basically sucked most value out of the firm
c) if after doing the above and you elect to leave the sinking ship, you should expect remaining management and investors to reallocate the pie
d) if you do all of the above, litigation will only worsen your situation. Unless the investors have truly acted fraudulently, you are not likely to win the case and worse, few new investors will likely back a litigious entrepreneur.

So, in short,
1)don’t raise enormous amounts of capital (less than $10-12m if unproven)
2) Focus on your core milestones and hit them
3) If you miss, keep an open channel with your investors. Honesty and frank communications goes a long way.
4) Don’t have unrealistic expectations if you take on considerable capital and flatline the business. There often is no value and later round investors are basically rolling the dice that something can be salvaged.

"This is like deja vu all over again."
      — Yogi Berra

Boy is it getting crowded and noisy out there. People, desperate to get a piece of the new gold rush, are leveraging the low cost, commoditized internet technologies to throw up all kinds of niche web 2.0 plays. This obviously will not end well. So, WHAT IS AN ENTREPRENEUR TO DO?

I have a pretty simple test for a new idea. If you describe it to friends or knowledgeable people, if they respond: "nice idea, but isn’t it just like…", time for a new idea. As Ross Levinsohn who runs Fox Interactive said, "Don’t copy the original; be authentic."  As he said, My Space was not trying to be Yahoo. Yahoo does a great job as an aggregation portal. He pointed out that Yahoo has repositioned their video service to look like YooTube. Not a good idea, and a reason that Yahoo will likely have to buy YooTube in the end.

Find unique spaces, strategies, verticals and approaches. Innovation and market leadership are rewarded in the technology world. Imitation, unless you are Microsoft, are not. Also, make certain that your execution is spot on and consumers get satisfaction in the most straight forward manner. And, listen to your friends and others…Isn’t it just like xyz?

The Kauffmann Foundation is know for being the most active non-for-profit funding entrepreneurial activities, studies and projects. They have rolled out a resource site for entrepreneurs called eVenturing
. This site has a collection of resources from aggregated blogs to surveys to "how to" reports on HR, marketing, finance and other core areas key to entrepreneurs. Lot of stuff on this site, so you will have to cut through it to find what is relevant to you, but I was impressed with what they had put up there. You can also subscribe to different feeds including different "perspective" pieces from leading entrepreneurs.

Definitely worth a look…click on the link above.

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…

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!!!)

Given that fund raising is of particular interest to entrepreneurs, I have split out Money 2.0 from Bootcamp (kinda like a VC product extension…).

One of my readers in Germany asked:

"I have been enjoying reading your blog along with the blogs of a few other VCs and one question keeps nagging me. It appears as if the VC community looks primarily for investment opportunities in businesses where there is little to no competition and/or the core idea is quite revolutionary…[what about those that] focus on measured improvements."

The key driving force behind the early stage venture model is the need to hit a 10x return on capital if the idea works. Because about 60% of venture deals either break even or lose money, the winners have a significant burden to overcome. Around 30% of deals come in around 3-5x and it is the 10% (one out of ten) that drive the return and needs to be 10x.

As a result, early stage VC’s need to find opportunities which can swing for the fence. A company with a "measured improvement" unfortunately can not break out of the pack fast enough to garner market leadership and an exponential return. For new technologies to be adopted and to leap-frog incumbents, they need to be exponentially better (cost, efficiency, performance, etc). It is the only insurance policy. For service plays, the features and experience must be significantly better.

There is also an intangible factor that makes one deal backable and another not. I can’t quite explain it, but it usually revolves around the management teams aura and ability to communicate the vision. In the end, most venture plays rely on hope and aspiration to get launched. Just as there are some presenters who can wow crowds…Guy Kawasaki for example, there are some teams that are masters at sprinkling the pixie dust. I’ll save, for another day, what constitutes elements of a good pitch (big market, great team, super economics…simple right?).

As the firms get bigger, execution becomes more and more critical. Toyota, Apple, etc are examples of companies that, while not revolutionary per say, are masters at delivering great customer experiences. However, early on, it is hard to convey superior execution when all you have is a business plan. This is where "revolutionary" helps. This is why venture only makes sense for a small portion of new businesses.