Clearstone Venture Partners – Intro to Online Communities

Clearstone Venture Partners – Intro to Online Communities

Today we met one of my favorite speakers to date, William Quigley, Managing Partner of Clearstone Venture Partners.  Quigley concentrates on its Internet and communications related investments, and gave our class a priceless education about how VC’s work, the stages involved in building a startup, how to select an industry to invest in, and how to pitch our companies to a VC.

Clearstone borrows ¾ of a billion dollars from large corporate investors to invest, and Clearstone gets to keep 25% of the profits. Quigley’s investment strategy is to invest in cold sectors because even if you have a great company, competition is what erodes profit margins; you want to be in the hot space two years before it’s hot.

He recommends using a VC because it’s really hard to go public or get acquired if there was no VC on board throughout a company’s growth to clean it up. The companies Clearstone incubates have always done much better than the people who just ask for money. A startup should always think about who would be a natural acquirer of this business; and think of others besides the usual suspects, Google, Microsoft and Yahoo. Companies tend to get acquired if they specialize greatly in one thing, especially if the firm does a lot of R&D, which big firms buy from startups with increasing frequency. Play in large markets because they’re very forgiving, and don’t depend on advertising revenue.

There is no shortage of money for good ideas, and you’ll need $10-100 million to build a successful company. No idea is too big to fun. For example, a WiMax business plan earned an entrepreneur $900 million of VC funding before a company was even formed! The downside to taking money from a VC is that they take control of your company. That’s not the end of the world though because the founder retains 50% ownership, no matter how much the VC puts in. That means an entrepreneur should shoot for as big an investment as possible. The pace at which you can raise capital will decide whether you’re the best in the biz or a lagger because there are always 10 other people right by you with the same idea.

The most valuable knowledge imparted on us is what a VC is looking for in a proposal, something all entrepreneurs want to know. First get their attention with a teaser PowerPoint presentation, and it’s a bonus if you already have a product or some customers. If you’re seeking less than a million dollars, go to an Angel instead of a VC. Guess market sizes and predictions when you have to because it’s a great problem when there’s no info about a market because no one’s capturing its future value yet. The CEO likes taking a modest salary so he can lead the team and say everyone’s bootstrapping together. Raise a lot of money but spend it as if you’ll never see another dime. Project revenues of years 1, 2 and 3. It takes about a month for the VC money to come through, but that’s a lot better than Angel investment time frames, where you’ll have to badger the investor for the check constantly. If one VC doesn’t like the idea, try pitching it to others. One of Quigley’s companies recently went public after getting rejected by 140 VC’s early on.

Quigley wants to believe in an entrepreneur’s vision about how the market will look in 3 years. I was surprised to hear that 75% of presenting to a VC is its entertainment value. My classmate Blake and I joked later that we ought to take up some acting classes before we approach a VC, but we will probably actually do it. The futurist must use 2-3 interesting trends or ideas about market evolution, convince the VC in his ability to recruit great talent, be informed and excited, be a great spokesman for the business, be capable of dealing with setback, and be willing to fight above his weight class. When you advertise yourself as a deep thinking in the space it becomes a self-fulfilling prophecy. Disciplined hard work will get you there: Spend months thinking about an idea, and package it in a way that’s easy to understand; have a really novel take on a new business model; capture the economics of your business in a chart or two. VC’s only want to play with ideas in which the visionary is right and everyone else is wrong.

The most startling fact of the day is that only 1 out of 1,000 pitches actually get funding, but there are many sources of money out there and if you have a great vision, stick it out and make it happen.

Lessons from Founders at Work: Stories of Startups’ Early Days

Lessons from Founders at Work: Stories of Startups’ Early Days

Jessica Livingston’s Founders at Work: Stories of Startups’ Early Days is a first-hand account of the creation of 32 of the world’s most influential tech companies. Each chapter is an interview with a different company’s founder, averaging 14 pages a piece. This gives the reader a lot of freedom to read one story at a time whenever he or she needs a little inspiration – and boy is it inspirational! Much of the time I thought, “That could totally be me!” so I took frequent pauses to blast out ideas into my Website Concepts log. The stories are often laugh-out-loud funny, and will make you wonder how the world could have possibly doubted today’s most useful technologies.

It’s interesting how much the founders have in common. For example they almost all started on a project completely different from what they ended up succeeding with. Many of them were forced to make major life sacrifices to dedicate themselves to a concept with no funding or revenue. Almost every story includes a paragraph about the time the founder had stayed awake for 4 days straight, working tirelessly on the product before launch. And rarely were their ideas embraced with open arms; instead investors, coworkers, friends, and competitors balked at them. As computing pioneer Howard Aiken once said, “Don’t worry about people stealing your ideas. If your ideas are any good, you’ll have to ram them down people’s throats.”

All of the founders convey great lessons learned in entrepreneurship. I will focus on a few of my favorite stories and some of the most valuable advice I picked up from their great achievements. However, I highly recommend reading it for yourself, as I consider this book highly inspirational. I will definitely flip back to one of these stories when I need a little encouragement in my own startup in the future.

Like many of the founders, PayPal’s Max Levchin is clearly a brilliant programmer and engineer, which makes it a little hard for me to relate at times. But he’s also a great entrepreneur, with valuable insight into startup success recipes. PayPal had changed its business plan six times before getting it right, which is fine because a good entrepreneur is not tied to any one specific plan. He also welcomes the challenge of being a novice in a field of experts because rather than conforming to the norm, you’re inspired to invent something. For example, Citibank competed with PayPal but, adhering to the banking norm, held tight restrictions over which users and transactions it would service in order to prevent fraud. PayPal let everyone use the system because “new users learning about a new system really don’t want to be restricted.” Instead PayPal became “a security company pretending to be a financial services company.” It judges the risk of a transaction to help it decide whether to block it or take it on. He attributes its tremendous growth rate to the world’s most powerful viral driver: money waiting for you when you sign up. Some sellers refused to accept PayPal but a buyer could still send them money through it. The seller receives an email informing him that money awaits him and naturally he registers an account. Finally, Levchin attributes his success to having a great cofounder, warning that it’s very hard to start a company completely alone.

Evan Williams founded Pyra Labs, which created Blogger.com. Initially it was a web-based project management tool for intranets, which he likens to today’s Basecamp. One of the products called Stuff enabled quick, disorganized sharing within the company. While the Pyra team considered it very useful to them, they thought it was too simple and trivial to be the product in and of itself. While there were other blogs on the internet, they weren’t taken seriously for a long time. At one point after releasing Blogger.com to the public, Pyra ran out of money and everyone except Williams quit or got laid off. This prompted the Server Fund Drive, in which Blogger’s website requested donations to keep the website live. Surprisingly $17,000 came in and saved the company. During 2001 Williams considered quitting many times but remained “hallucinogenically optimistic,” his most valuable advice. Don’t let people talk you out of your gut feelings or force you to compromise on your ideas. “If everyone agrees, it’s probably because you’re not doing anything original.” He also warns an entrepreneur to roll with the punches, because if things don’t go according to plan, you never know whether it’s good or bad until later, if ever. Deals that didn’t work out were a bummer at the time but turned out to be very lucky. Williams concludes that it’s amazing how far you can go with a simple idea.

Tim Brady was the 3rd employee at Yahoo, after the two cofounders. He left Harvard Business School in his last semester to join Yahoo, not knowing whether they would graduate him. Originally Jerry and Dave used Yahoo to keep track of the technical papers they used in doing their PhD theses. All major EE graduate programs found out about it and send them emails asking them to add papers to the list. Suddenly they went from doing their graduate work to adding websites to their list for 8 hours a day for 8 months, and traffic grew exponentially, so they called Brady asking for help. They were offered money by the LA Times, AOL & Microsoft early on but decided to do it themselves because they had so much confidence in what they were doing. Concerning competition, Brady reflects, “Although we thought it was crazy, AOL’s walled garden was bigger than the Internet for a handful of months there, which made our strategy impossible. That was definitely a threat” Employees experienced 16- to 18-hour work days but the group of people was great so the hours were never dreaded. An embarrassing reflection was when the Yahoo team met the Hotmail founders for lunch and rejected the idea, unable to see how it could get big. Brady argues that doing business with friends was a good idea in his case, in spite of the common contradictory words of caution.

Paul Buchheit was the 23rd employee at Google. He started companies within Google and enjoyed the benefits and minimal risk as opposed to starting them by himself. For example, he was able to learn from successful techniques in other divisions, brainstorm with very smart people around him, access expensive infrastructure for free, and receive a warm welcoming to his “crazy ideas.” He brags that he built the first version of Gmail in a single day and, by the way, also built AdSense in less than a day. One reflection involves Buchheit pulling a malfunctioning hard drive from a PC and transplanting the electronics from another drive to salvage the data. Like many other founders interviewed, he stayed up for 3 days straight prior to launch, furiously assembling and testing; and he considered normal working hours noon until 3:00 am. It’s interesting that he doesn’t know whether he would have earned any less money if he had not created Gmail and AdSense, but I get the impression he’s earned enough not to be concerned. Buchheit recalls that he left Intel for a little startup not knowing whether it would succeed because he considered it a learning experience, admitting, “Honestly, I was pretty sure AltaVista was going to destroy Google.”

Deciding Whether and How to Participate in Online Communities

Deciding Whether and How to Participate in Online Communities

Research is the key ingredient in social media marketing. When deciding if and how to invest in social media marketing my company must first investigate where our consumers are conversing and participating. Out of thousands of thriving social platforms on the web, my job is to determine which ones my consumers are most engaged in and influenced by. This can be done effectively by searching for and reading posts, particularly by “influencers,” across multiple channels. For one, I can set up syndication on Google Reader to gather all recent blog and social news posts that mention my industry, brand or competitors, and then follow the discussion and gauge its influence. Similarly I can search Twitter and Facebook updates and follow their outbound links. It’s also important to study our competitors’ social media focus and speculate on their effectiveness.

I need to determine how to engage my consumers where they already converse. Bryan Wiener’s Playbook suggests that consumers will no longer tolerate being advertised at. Instead we must join the conversation where it already exists. He also demonstrates a big opportunity in harnessing consumer-generated media, where he says 20% of consumers’ time is spent and less than 3% of marketing budgets are spent. There seems to be a huge market opportunity there so I should seek out the influencers who generate media related to my industry and open a dialog with them about creating content for my company, mentioning my company in a subsequent video or app, and possibly consulting for or joining my company as an analyst or advertiser.

If my brand or industry is heavily conversation-worthy and a proper outlet does not already exist, I can consider creating the space for a new community within our own domain. I can install a forum for my core group of customers to publish valuable content for free. I can start a blog with useful information and resources my customers are after. Or I can provide a creative space for socializing and collaboration.

While Wiener argues that the greatest struggle in developing a successful online community is selecting the platform and method of engagement, Owyang suggests that growing the community is the real challenge. In his experience successful growth occurs when the members take leadership, then ownership, and eventually become caretakers. To do this the “host” of the community must involve the early members and treat them as special guests. The host should individually contact creators and influencers leading the charge at other social spaces and empower or reward them with special membership and public recognition. The community should be encouraged to share stories, problems or successes while I’m out recruiting new members with other marketing tools like email newsletters, newsfeeds, podcasts and blogs.

Ultimately, according to Mashable’s Brian Solis, the community will need to inspire transformation, improvement and adaptation from the inside out. Early on I can envision how my company might accomplish such outward influence and wireframe my site and social profiles to enable it. With the US social media audience reaching 122 million, I think the question is not whether to participate in online communities, but where and how to engage with our current and future customers.