book recommendation: The Shadow of the Wind

Getting on a plane? Keep a list of must-read books?

Over the holidays, a friend casually suggested that I read a book by the Spanish author Zafon. 7 hours later, I had finished what is the most wonderful book I have read this decade.

Carlos Ruiz Zafon's, The Shadow of the Wind, is simply amazing. The book, written in 2001, takes place in post-war Barcelona - the narrator, Daniel Sempere, is the teenage son of a bookseller. After finding a book by the little-known auther, Carax, the boy discovers that, despite the brilliance of Carax's work, all his books are being destroyed one by one.

As Daniel seeks to uncover why, he stumbles into a spider's web of forgotten murders, doomed love, and secret pasts.

The book is a gift and one to savor. Let me know if you enjoyed it and if you can suggest one that proved equally moving to you.

Change.gov Widget

For all my Obama friends, please find below a Change.gov widget that will help you track the transition and the Office of the President-Elect over the next month.

Amish Jani - New Blogger

My good friend and former colleague, Amish Jani, is now blogging. 

Amish is a MD with FirstMark Capital and one of the smartest venture guys I know.

His new blog, Just Getting Started, covers the venture and tech industry and is definitely worth adding to your blog reader.

The End of Wall St's Boom

If you liked Moneyball and Liar's Poker, I strongly recommend that you read Michael Lewis' latest essay, "The End of Wall St's Boom."

Brilliant.

Tenacity

We live in a world of challenge and adversity. I am sure that each of you, at times, feels the weight of expectation and the burden of failure.

Take heart, the greatest of successes are forged in trying times. Like Job, Lincoln serves as inspiration.

A list of Abraham Lincoln failures (along with a few successes) follows:

• 1831 - Lost his job
• 1832 - Defeated in run for Illinois State Legislature
• 1833 - Failed in business
• 1834 - Elected to Illinois State Legislature (success)
• 1835 - Sweetheart died
• 1836 - Had nervous breakdown
• 1838 - Defeated in run for Illinois House Speaker
• 1843 - Defeated in run for nomination for U.S. Congress
• 1846 - Elected to Congress (success)
• 1848 - Lost re-nomination
• 1849 - Rejected for land officer position
• 1854 - Defeated in run for U.S. Senate
• 1856 - Defeated in run for nomination for Vice President
• 1858 - Again defeated in run for U.S. Senate
• 1860 - Elected President (success)

Feel better?

Book Recommendation: The Snowball

Warren Buffet is well recognized as the world's best investor and as a man blessed with making the complex simple.

Roger Lowenstein wrote a wonderful biography of Buffet, The Making of An American Capitalist.

Now, Alice Schroeder, a former insurance analyst, brings us The Snowball: Warren Buffet and the Business of Life.

Warren Buffet allowed Schroeder unparalleled access to his records, business partners, and family and delivers a masterful portrayal of a master businessman.  In return, we are granted valuable and entertaining insights into Buffet's life, philosophies, and world view.

Occam's Razor states that, "all things being equal, the simplest solution is the best." Of all of Buffet's strengths, the trait that leaves the greatest impression on me is his ability to make simple that which others make so complicated. In that simplicity, the confusion fades and things appear so clear and easy to understand.  

His ability to digest ungodly amounts of information - 10Qs, 10Ks, CNBC, the paper, magazines, deal pitches - and to identify signal amongst the noise is simply amazing.

He is loved not just for his brilliance, but also for his complete authenticity - an amazing sense of self and constancy in the face of a world fraught with change and uncertainty.

While few us, maybe none, will replicate his investment track record, there is much to aspire to in regards to his clarity of thought and his internal compass that maintains a steady heading in a stormy world.

Travel Schedule

In the next three weeks, I am lucky to be speaking on three great panels.

Digital Hollywood's Widgets as a Platform on Oct 28th
Widget Summit's Meet the Galleries, on Nov 3rd
Pubcon's The Wonderful World of Widgets on Nov 13th

If you plan to be at any of the events above, please let me know. will @ widgetbox.com

Another Chapter in the Life is Stranger Than Fiction Column

Who Could Make This Stuff Up?



PALM BEACH GARDENS, Fla. (AP) — U.S. Rep. Tim Mahoney, embroiled in an adultery scandal and a tight race for re-election, admitted Friday to having at least two affairs but insisted he broke no laws and will not resign. The first-term Democrat conceded that one of the affairs began as he was running on a family values platform to replace Mark Foley, a Republican who resigned amid revelations that he sent lurid Internet messages to male pages who had worked on Capitol Hill as teenagers. Mahoney, 52, apologized to his wife, his daughter and his constituents, even as he maintained he hadn't been hypocritical.

Announcing the Widgetbox Blog Network

I am excited to announce the launch of the Widgetbox Blog Network.

The Widgetbox Blog Network connects bloggers across 29 channels (from art to celebrities to music to politics) using a single widget that dynamically showcases content across all of the blogs in that channel. You’ll notice, for instance, that I’ve joined the Tech News Channel and placed the widget in the top right of my blog template. On each page view, new blog posts are dynamically presented from other bloggers also in the Tech News Channel - and likewise, my blog posts appear on their pages… effectively driving highly relevant traffic across the network and taking advantage of Widgetbox’s large audience / community.



Why are we launching a blog network? Simple, at Widgetbox, bloggers and blogs are the core of our community and the new Blog Network:

- Widgetbox has widgets on over 250,000 unique blogs
- Blidgets (blogs we help turn into widgets) have been served over 1.5 BILLION (!) times
- Widgetbox now reaches over 65 million unique each month (verified by Quantcast)



You will also notice that the widget is customized for my blog – showing a badge of my blog and its rank within the Channel (I’m #8 - need to blog more).

Joining is easy:

1. Visit http://www.widgetbox.com/network and select the Channel that fits your blog
2. Click the Join This Network button, select your blidget (or create one) and then grab the Channel Widget’s code
3. Add the code to your blog template and press activate

I attach a copy of the PowerPoint briefing here:

Widgetbox Blog Network from BlogWorld

View SlideShare presentation or Upload your own. (tags: bloggers blogworld)

Websites Losing Relevancy for Brand Strategy and Consumer Engagement

Peter Yared's post, “Websites Are So Over,” is a great read. Using Alexa data, Peter illustrates the dramatic decline in daily reach for the websites of some of America’s greatest brands; such as Apple, CNN, Fedex, Disney and others.
The charts below are from Peter’s post and they illustrate the massive fall off in reach experienced by members of the Fortune 500. The CNN daily reach per million data below is particularly telling, a significant relative decline over a two-year period.








The measure of web marketing success used to be measured in page views, visits, and reach. Millions were spent on powerful sites and on related marketing campaigns that focused on driving users back to the company web site. In today’s age, however, of RSS readers, social networks, and huge numbers of user-generated sites, the paradigm has changed. The goal can no longer be simply to funnel traffic back to cnn.com, but rather the new goal is how best to take the content, applications, and ad inventory from cnn.com to the users.

Widgets, social media applications, and RSS feeds are the modern day web marketers tools and the model has inverted from driving users to content to driving content to users.

Peter is also the founder and CEO of iWidgets, a newly launched widget and social application builder that allows brands to take their content and services onto the distributed web and off-domain. The service is currently in beta and well worth checking out. He launched with CBS and is helping to make social syndication of tier one content a reality.

Quick Feedback: On-line Ad Growth Rates

A friend and great Internet analyst just pinged me on my prior post.

He sees the following growth rates for the on-line ad market

Q3: low teens
Q4: mid single digits
2009: flat

Mix: display down with search growing at display's expense.

Key point: does not see the 20% growth forecast earlier this year by many market watchers.

How will experimental budgets hold-up?

The need to prove efficiency, engagement, and performance will be critical, as will the ability to prove differentiated reach.

Where is Money Going?

The Dow fell today 450 points or 4.6%, the S&P 500 fell 57 points or 4.7%, and the NASDAQ fell 109 points or 5%.

Morgan Stanley fell 24% and Goldman, the bluest chip financial firm in the world, fell 14%. GOOG feel $28+, or 6.42%, Yahoo! fell

Where is the world putting its money - gold, up close to $80 dollars today.

The attached widget tracks the price of gold - the price of gold is like the proverbial canary in the coal mine. The faster it goes up the greater the worry regarding inflation and fiscal/economic health.

Again, I find it fascinating that the Bay Area remains largely insulated from the downturn impacting the world's money centers - NYC and London, in particular.

The next few months will help us understand if on-line budgets prove counter-cyclical - Google's next earnings report will be instructive. To date, I can only turn to anecdotal evidence which suggests that on-line spend remains robust, with a particular strength in performance-based spend. Of course, budgets are set months in advance and it may take time for the current economic malaise to ripple through.

As 2009 budgets firm up, we will see if the performance benefits of on-line advertising protect the sector from a downturn. The current growth rates project 20% y-o-y upticks in on-line spend. For start-ups, the overall growth rate certainly matters, but more importantly advertiser appetite for experimenting with new mediums and technologies matters more. The on-line market's growth can slow but IF advertisers' appetites for trialing new ad channels remains robust newer markets will grow faster than the overall market.

Two data points to watch closely - total on-line ad market spend and mix/reallocation within the total spend. For start-ups to grow, the overall allocation and the allocation to experiment with new technologies and forms of advertising will matter a great deal.

Book Recommendation: Supreme Courtship

Politics in America is bordering on the absurd. While the economy is in turmoil, we can't stop reading about field-dressing a moose and lipstick.

The mendacity, absurdity, and sick humor of the current political age is brilliantly captured and skewered in Christopher Buckley's new book, Supreme Courtship.

Buckley tells the tale of President Vanderdamp and his efforts to nominate a new Supreme Court justice. Unfortunately for the President, the Chairman of the Judiciary Committee wants the job. The greedy senator blocks two incredible candidates, one for writing, at the age of 12, a critical film review of To Kill a Mockingbird for the school paper. Clearly, a racist.

Ticked off at the Senate for rejecting his nominees, the President decides to get even by nominating America's most popular TV judge to the Supreme Court. Judge Pepper - a hot version of Judge Judy - prepares for the nomination process and the insanity begins.

Great read and a book that perfectly captures the disfunction of Washington.

Wall St's Demise and the Impact on Tech

Imagine waking up to read the following headline, "Oracle Declares Bankruptcy, Cisco Sold to Microsoft in a Cut-Rate Deal."

The figurative and literal pillars of the financial economy are falling like dominos - Bear Stearns, Fannie Mae, Freddie Mac, Lehman, and now, amazingly, Merrill Lynch is being sold to Bank of America.

Perspective? 

It is hard to fathom the depth of the financial crisis on Wall St, yet alone the seismic shock waves that are rippling across the country given the litany of failed and failing firms. The CEO of Bank of America expects 50% of the nation's banks to fail. Yes, that would be 50% of the 8,500 banks in the US.

The tech downturn saw marginal firms fail, however, the financial market failures are not only of a much larger magnitude, but also the names in distress are of a far different caliber. The firms failing today are the bell-weathers of the industry and foundational institutions. 

Walking up Park Avenue, or through Times Square and the size of Bear Stearns, Lehman Brothers, etc literally loom over you.

Thousands of employees, billions of dollars, the credibility of regulators, executives, and the ability of markets to effectively price and manage risk are gone.

To date, the shock waves seem to be passing Silicon Valley by. 

What will the impact of this unprecedented meltdown be on Silicon Valley and on the Internet sector in particular? To what extent will Wall St's failings and the large credit downturn impact Internet/tech companies?

Will venture firms change behavior or their appetite for certain types of risk? 

No one knows...the future is uncertain, however, start-ups can work to reduce risk by exercising real spending discipline - working hard to reduce non-core expenses, thereby delaying capital raising and extending the runway.

Great start-ups play on long-term secular trends - on-line media consumption, mobile Internet, on-line advertising, etc. For us in tech start-ups, I see two important gut-checks - are we working and riding major secular trends and are we investing in growth in reasonable and prudent ways?

So much in life lies beyond one's control. If one is riding a major wave of change and spending wisely to leverage it, then keep your head down and keep making it happen. If you are not....

Scott Zenko: 1972-2008, RIP

For me, a brother, friend, uncle, and inspiration. A free spirit constant in his love for life, family, friends, and the next adventure.

Widgetbox Posts

I recently posted two blog posts on the Widgetbox blog and wanted to share them here.

As you know, I am five months into my role at Widgetbox and the posts cover some of the reasons I am so excited about our prospects.

The first post responds to a recent CNET article that speaks to the risks of being a social media application, while the second post comments on the attached image - ie that while the web is fragmenting, a the top 10 sites continue to dominate ad spend and how/why that needs to change.

Widgetbox at SF New Tech

Tonight, SF New Tech is hosting a "Widgets up the Wazoo" event. Gigya, Musestorm, iWidgets, Zembly, and Widgetbox are presenting and all will be demoing.

If you are in SF and interested in the widget space, the event brings together some of the leading players in the space.

Thanks to Lawrence at RateitAll for organizing the event.

Alacatraz 100 - One to Add to the Bucket List

Today, I swam the Alcatraz 100; the icnomic swimming race starts at Alcatraz Island and ends 1.5 miles later in SF's Acquatic Park.

The weather, tides, wind, and fog all cooperated and made for an amazing day and experience.

I understand the movie the Bucket List proved to be so-so, the idea, however, of making a list of things to do before you die is cool.

After today, I would suggest, if you enjoy outdoor challenges, that you add the Alcatraz 100 to your list.

As I checked in for the race, the organizer asked me to promise him one thing....in the middle of the race stop swimming and take in the setting...Alcatraz behind you, the Bay Bridge to your left, the Golden Gate to your right, and the city of San Francisco looming directly in front of you.

I managed to stop twice and the views will stay withe me...until next year's race!

Thanks to my colleague, Ryan Spoon, for motivating me.

Summer Read - Rob Smith's Child 44

Great murder mystery, 1950s Soviet Union, the next Ridley Scott project....Child 44.

Worth ordering.

Change Will Come

SWAT Summit

Last week's SWAT Summit in SF brought together leading players in the social media, brand, and agency worlds. Widgetbox participated on the Social Advertising Case Studies Panel.

First, thanks to Cassie Phillipps and the rest of the gang at Room Full of People for putting on a great show and for including us in the conversation.

While the conference centered on how brands and agencies can best harness the power of the social web, the panel focused on specific campaigns and their results. The audience, like many people I speak with, wanted to understand what advertisers can do to leverage social networks and widgets to connect with their audience.

The other panelists were imeem, Votigo, and BeAffinitive.

Widgetbox presented a case study on a cost-per-install campaign that we ran with a music video provider. The results, as you can see by watching the embedded slide show, were powerful. With an 11-day campaign, the widget enjoyed a 50,000% increase in hits, a 110,000% increase in uniques, and a 8,800% increase in subscriptions. The best news is AFTER the campaign finished, hits continue to grow and the widget is enjoying steady organic adoption and distribution.

If you are interested in running a campaign with Widgetbox, please let me know...will.price at widgetbox.com

Widgetbox SWAT Summit Case Study

view presentation (tags: cpi widgetbox)

Mongol, A Movie To See

In July 2005, I read and reviewed on this blog Jack Weatherford's wonderful book, Genghis Khan and the Making of the Modern World.

Jack Weatherford outlines Khan's amazing life story and rise from outcast/orphaned Mongol nomad to ruler of the world's largest ever empire. The book serves as a major rehabilitation of Khan's legacy and transforms the traditional view of Genghis Khan from brutal tyrant to transformative ruler who spread the rise of free trade, religious freedom, science, standards, paper currency, postal services and communications, and national identities in lieu of tribalism, religious persecution, and autarky.

Khan's genius lies in his ability to transcend his circumstances and envision completely novel means of organizing armies, ruling empires, and structuring society (merit vs hereditary and tribal). An Indian friend of mine and admirer of Khan's describes him as being "self-born," a force in history with no precedent and a man of ideas and achievement completely non-linear to his context and roots. I really love that concept.

Now, Sergei Bodrov brings us his brilliant epic, Mongol. The move brings to life the steppes, the man, and the incredible rise from obscurity that marked Khan's early life. It is a movie to get lost in and one that you wish would keep going. The good news....Mongol is the first of three and I cannot wait for the sequel.

Rich Price - Turn Off My Heart Video

My brother Rich's song Turn Off My Heart premired on MTV's Real World show last week. Since then, he is up to the #4 unsigned artist on MySpace for the Folk Rock segment.

Embedded in this post is the video to the song.

Facebook Turning Off Spammy Apps

Guest Post by Tracy Pizzo, my colleague at Widgetbox:

The Facebook f8 platform is just over one year-old, and yet to some app makers it must feel like it is hitting the "terrible two's" a little early...

Last week, Facebook suspended Slide's Top Friends app - one of the most popular on Facebook - for privacy violations. It then suspended SocialMe, also for privacy violations, and this morning TechCrunch wrote about the shutting off of all viral elements of RockYou's Super Wall (newsfeeds, notifications, invites, etc.). Today, TechCrunch reports that SpeedDate is now no longer working.

From the app maker's side, this has had immediate and detrimental effects, as user numbers have taken a nose dive from where they have been for many many months. This could have long reaching and deleterious effects for companies such as Slide and RockYou that have focused an enormous amount of their development energies on a select few platforms. Take a look at this graph on Super Wall to see exactly how fast apps have been spread by spammy invites and notifications, and how fast the drop off happens without them:



But, there's another way to look at this. I applaud what Facebook is doing here - they are putting their users first, which is exactly what should matter most to them. Even if these apps have driven a lot of growth for Facebook over the last year, I think I can speak for most Facebook users in saying that a lot of the methods these apps use to spread themselves around can be really frustrating. Time.com had a great article in April that outlines some of the struggles Facebook users have when using apps.

Time.com notes that "the increase in "junk" notifications is enough to leave [Facebook users] feeling peeved," to which Facebook responded months ago by allowing their users to shut off app notifications one by one. But what I believe has been more frustrating for users is that they simply don't always know what they are getting themselves into. This same article outlines this experience perfectly,

An even bigger nuisance with using Facebook apps is that it's not always clear how they work. Tina House of Combine, Tex., says she accidentally posted a Valentine's Day greeting that said "I love you," not just to her husband, but to all of her friends, while using the application Super Wall, because she did not realize that the program defaulted to sending the posting to everyone. "I still shudder over that one," she says. And because advertisements are slickly intertwined with the apps — they often use the exact same font and graphics — it's easy to inadvertently click one by mistake.

I know that I was duped by the "Click to forward to see what happens" on Super Wall, and I spend enough time with widgets and apps that I should have known what was happening.

This latest suspension by Facebook illuminates a continual ratcheting down on spammy aspects of apps over the last few months, and I don't expect it to stop until they feel their user experience is protected. A lot of companies like Slide and RockYou took huge risks in focusing on such a small number of domains (I'm counting Facebook as one domain). They really pushed the envelope - albeit in a number of innovative and effective ways - on optimizing viral spread of their apps, and because of their sharp thinking they (and by proxy, Facebook) saw enormous success from very early on. That same growth is now starting to have diminishing returns for Facebook, as there has been a leveling off of site usage in both the US and the UK, slowdowns which first started rearing their heads a few months ago. Once those diminishing returns kicked in, Facebook had to take action in order to stay ahead.

What is clear to me is that the early success many folks saw on comes with a big price tag, and they may now have to pay the very real and painful costs as Facebook, and I'm sure other app platforms soon, come collecting. Assuming that growth between apps and Facebook will always go hand in hand and be mutually beneficial is a dangerous game to play.

This news also highlights what I think of as the bigger picture here, which is users' desire for choice. At Widgetbox, we often use an analogy to the early days of television. When TV first went mainstream, everyone was thrilled with the three channels that were available. Those channels saw such success that the networks themselves believed they could accurately predict what EVERYONE wanted to watch. Today, we can look at the rise of cable and the hundreds and hundreds of channels out there and see how untrue that was. Really what consumers wanted was choice. They wanted more channels with more programming focused on smaller and smaller niches so they could easily find what they were looking for. They didn't want to have to sit through programs and commercials the networks chose, but rather wanted their television delivered on demand. Maybe no individual channel had as much blockbuster success as the first three, but in the aggregate they changed the face of television dramatically. I believe this analogy is true for widgets/apps as well. We're huge believers in choice and access, and clearly users - and the platforms themselves - are starting to throw up their hands with the more one-size fits all approach that has dominated the landscape thus far.

Essentially, what this news screams to me is the need for independence. Domain independence, app independence, and network independence. Pretty fascinating stuff, and it continues to be a wild and dizzying ride, with no stopping anywhere in sight.

Widgetbox is Hiring

Widgetbox is actively hiring senior JAVA and DMBS engineers. The spec follows. If anyone is interested in joining us/me at Widgetbox, please reach out and let me know - will.price at widgetbox.com

Thank you.

Widgetbox is a Sequoia-funded, 23 person Internet startup based in San Francisco that is improving the Internet through choice and access. By connecting widget consumers, creators and advertisers, we provide choice to those who want it and reach to those who need it. We pioneered the rise of widgets to become home to the world’s first and largest widget community, with more than 70,000 widgets and 45 million monthly viewers on over 920,000 domains.

We are interested in talking with candidates who meet the following requirements.

SKILLS AND REQUIREMENTS
Expert in Java, Servlets, and XML
Proficient with Hibernate and Spring
Development and design experience with Service Oriented Architectures
Experience with MySQL a plus
Team leadership experience
Solid track record of meeting deliverable targets, and taking part in successful releases
Strong understanding of web technologies used in social networking and Web2 sites
Experience with performance and scalability work and designing scalable systems

Custom Galleries from Widgetbox

Today, Mashable covered the launch of Widgetbox's Custom Gallery Product. 

Widgetbox is the largest consumer facing widget platform. One of our core assets is the Widgetbox Gallery; home to over 66,000 widgets. Why so many? Because user's love choice and use us to find content that foots to their individual passions and interests, be it finance, sports, children, or Buddhism....

As Mashable notes, with today's product launch third party blog, social network, and website building platforms are able to offer the Widgetbox's widget content to their end users.

We are fortunate to launch the product with some amazing partners, including Typepad, Xanga, Amnesty Hypercube, Doodlekit, Freewebs, Friendcodes, Netvibes, Nimble.ie, Piczo, Synthasite, Webjam, and others.

Why is this important? Users love to express, learn, and interact with widget content and widgets add significant utility and stickiness to consumer web platforms. With simple IFrame or XML/JSON integration, Widgetbox's partners can offer all or a subset of relevant Widgetbox widgets to their endusers.  Some of the partners noted above went live two days after contacting us, and our goal is to make the Custom Gallery a seamless, self-service experience.

Thanks to all our partners on a great launch. If you want to add a Custom Gallery to your blog, social network, or website building platform....drop me a line at will.price at widgetbox.com

Team Chemistry, Stress, and Success

I recently read an interesting article on what makes a great start-up. The author, a Google alum, noted three important characteristics:

• team chemistry 
• rapid iterations 
• clear end-user focus

I doubt many would argue with the prescription, however, there is a major paradox implicit the in the list.  Team chemistry requires healthy interactions and good behavior. Iterations imply change and change creates stress.  Under stress, all of us react in two major ways.

1. deflate - withdraw, become resentfully compliant, are negative
2. inflate- yell, raise our voice, lash out, seek to dominate

In fact, start-ups are nothing if not stressful. Things are changing constantly - in fact they have to in order to succeed. There is a finite amount of cash on hand, lots of competitors, and major incumbents working to crush you.

Over the years, we learn to develop coping mechanisms to process stress. Sadly, most of our coping mechanisms lead to bad behavior that may protect us in the near-term but eat into the social health of the organization and into our individual effectiveness.

In managing start-ups and in building a culture open to change and to iteration, it really helps to arm the team to recognize that under stress we tend to react badly, and in the negative reaction we hamper the ability to maintain cohesion and our credibility.

It is  important to ask people to be self-aware of their coping mechanisms and yours, to be aware of what triggers a negative reaction, and to develop good tools for effectively processing stress and defusing tension.

Some well known tools involve, listening, asking questions and for clarification, remembering not to take things personally, patience, acknowledgement of others, being dependable and trustworthy.

Success is the progressive realization of worthwhile goals. All success and development, moreover, means the abandonment of a familiar position. All growth requires the ability to leave behind the comfort of the "known."  

Success will require change - change will lead to stress - and success is contingent on how well we handle stress. Ignoring the reality of how we cope with stress is to risk the health of the team, one of the three pillars of what makes for great start-ups.

 

Shantaram

Periodically, we stumble across a book or a film we have never heard of and open its pages to discover magic.  Shantaram is such a book.

The book, by Gregory David Roberts, is an amazing tale of adventure, betrayal, suffering, and personal growth. The quick summary follows: Roberts escapes from an Australian maximum security prison where he is serving a time for armed robbery. Via New Zealand, he flees to Bombay, where the magic begins.

He quickly settles in Bombay, learns Hindi and Marathi, and opens himself up to the love and friendship of the city's residents. His journey includes a long stint as a slum doctor, time in the Bombay mafia, and a journey into Afghanistan via Pakistan to join the mujaheddin in fighting the Russians.  In between the adventures, he wrestles with the meaning of life, suffers through hellish bouts in Indian jails, and grows from a hardened ex-con into a man that is the full reflection of the complexities of life, both good and bad.

I loved every page - all 800+ of them - and if you are looking for a book to get lost in on vacation, flying across the country, etc., Shantaram is one for the ages.

ThinkTomorrow

I am in Half Moon Bay for the Think Tomorrow Private Capital and Venture Capital Summit. 

Think Equity, a boutique investment bank, organized the conference to introduce new comapnies and categories to the investment community.

Speakers included John Doerr, Chad Hurley, Mark Andreessen, Bill Campbell and others. 

 

I spoke on a panel titled, "Monetizing Social Media, Can It Be Done?," along with guys from Rockyou, Flixster, Gigya, and Lotame.  Surprisingly, the panel believes that it CAN be done:)

The day started with Bill Campbell, the chairman of INTU and an AAPL board member, interviewing Google's SVP of Product Marketing and Management, Jonathan Rosenberg.  The topic, innovation, is at the heart of all we do and the insights were valuable.

Jonathan started off by comparing and contrasting his training in product management with the current model employed by Google. 

Jonathan grew up in the MRD -> PRD -> tech spec -> waterfall gant chart method of product management that for many years defined software project management.  The documents passed serially from one department (marketing, product management, engineering, qa) to the next, the time frames were measured in months, and engineers were told what to build and when to have it ready.  The net result was often dissatisfaction across all constituents - product management failed to get what they thought they asked for, engineers felt like second class citizens/code monkeys, and the business suffered as a result.

At Google, Jonathan found several conditions held true, most of which all Internet companies can relate to.  First, the market moved extremely quickly and the product cycles needed to match the market's velocity. Second, the pace of change made requirements analysis challenging and a traditional product development process ripe for failure, and finally the needs of the market were tacit, not overt, and engineers were often best suited to understand the technology/user need base case and find the implementation and feature set that best met that tacit need. The business stack ranked problems and priorities and let engineers solve the problem - a respect and appreciation for the ability of engineers to find elegant answers to the business need permeates the company.

Given change is a constant, Google also focused on hiring generalists. Hiring for a discrete need often failed as the need would change to another priority the day after the specialist started. Finally, he found he needed to free himself from the baggage of his training and open his mind to new approaches - where management becomes a vehicle for encouraging collaboration of very bright people rather than prescribing discrete tasks.

Finally, he argued as the market changes winners and losers emerge (i.e. features) - Google feeds the winners and culls the losers quickly and works to let the users guide them as to what deserves funding and resource.

At Widgetbox, we recognize that the collaboration trumps serial and siloed product development processes. We recognize that engineers are often best suited to think through how best to implement a feature. Accordingly, we are working to be agile, collaborative rather than declarative, and have settled on Scrum as the convention for optimizing the challenge of fast moving markets and a need to organize effectively and efficiently to best respond to users and the market.

Can you be nimble without avoiding chaos? Can you have engineers play a key role in feature implementation without missing the market? 

The challenge is to find a convention, a framework, that provides common semantics, rhythms, deliverables, and a method by which the company can rank priorities.  We are experimenting with Scrum as our convention, as daily stand-ups, weekly releases, and bi-weekly sprints as our rhythm and deliverables, and are working to create institutional capacity for flexibility and collaboration across functions.

Each sprint team is composed of UE, product, eng, and qa resources and, as in traditional Scrum, sprint teams pull off the highest priority tasks from the product backlog. We are working hard to ensure we gang tackle business problems and let cross-functional teams develop the optimal implementation/solution.

Priorities. Rhythm. Data; three goals we are working to master. Rosenberg's talk proved quite inspirational and a lesson that new markets require agile methods of software development and that management is often tasked more with creating conditions for great people to develop great answers rather than in prescribing the answers to employees expected to merely implement them. 

List of Service Providers for Start-ups

Quick post passing on a good list from Rob Webb regarding the best tools/services for start-ups - ie conference call services, CRM, PBX, etc.

Helpful reference.

Lost My Voice

Since taking over at CEO at Widgetbox, I have completely lost the blogging muse. The longer the silence, the more pressure I feel/felt to write something interesting.

Why is it harder to write?

Busier? Not really.

If not that, then what?

It finally hit me today. As a VC, I actively worked with nine to ten investments, met with scores of potential investments, and enjoyed a wonderful perch with which to observe start-up life, the venture process, and best/worst practices.

I could write, "I attended a board meeting today and observed x, y, and z." Or, "today I met a VP Sales who really understand the sales life cycle..." The anonymity of the comments provided cover that allowed for rich detail and candid observations on the week's learnings. The inability to tie a comment to a particular person, venture investor, company...etc makes for rich commentary and illustrative examples.

As a CEO, this is harder - it is not "a" board meeting but "my" board meeting - ie the parables and lessons leave little room to the imagination with respect to the source and people involved.

Furthermore, I am wary to turn my blog into a Widgetbox promotional vehicle and simply post about all the wonderful things we are up to at 1000 Sansome St.

I am working on a voice that can replace the lens into the VC world without Wbox chest-beating and/or Wbox confessionals.

In upcoming posts, I plan to comment on the VC vs operating role choice and my observations on what it is like to move from one side of the table to the other. I know it is the quintessential young VC question - and I hope to share my experiences with those thinking through the two choices.

Apologies for the radio silence - I am working to adapt my blogging voice to my new role.

How Widgets and Widgetbox Drive Incremental Traffic

Guest post from Ryan Spoon at Widgetbox.


The article below is excellent validation of the power of widgets to drive incremental adoption and of Widgetbox, in particular, to outperform Facebook and Bebo for long-tail widgets. After 7 days, Widgetbox drove 1.7x Facebook's subscriptions and 3.9x Bebo's.

Davids SEO Adventure posted a great article about trying to drive web traffic via widgets and gadgets. David has launched a new website (SodukoWorld.be) and is documenting its growth - and we were pleased to find that Widgetbox has quite helpful thus far:

And after a couple of hours of messing around with Facebook application development, I went of to visit my good ol’ friend Google to see if there was an easier way to do this. And guess what? obviously there was. It came in the name of WidgetBox, the all purpose widget making type system. So I signed myself up, threw some html at it and watched in enwonderment at the resulting usefulness: a SudokuWorld Widget that could be put in Facebook, Bebo, Wordpress and all other sorts of things.

And while creating a widget and Facebook / Bebo application was easy, David also reports that it was effective:

After 2 days

Facebook: 27 users
bebo: 35 users
WidgetBox: 92 users

Outcome: bright and breezy - not too shabby for a beginner

After 7 days

Facebook: 91 users
bebo: 40 users
WidgetBox: 156 users

Output: wahoo!

We are obviously very excited about those results and helping David's business (and others!) grow.

blogger badge - get one today

Widgetbox is home to 43k+ widgets and counting. For all the bloggers out there we just released a blogger badge which I think many of you will find useful.

The blogger badge allows you to provide one click access from a widget to your profiles on:

• facebook
  
• linkedin
  
• twitter
• myspace
• digg
• stumbleupon
• flickr
• your blog
  
• etc
  

My version of the badge is below and is also now a default widget on the upper right of my blog.

Moving from Humwin to Widgetbox

I am pleased to report that, as of today, I have joined Widgetbox as CEO.

HWVP seeded Widgetbox in April of 2006, and I have steadily grown in confidence in the market, team, and opportunity. The company is an anchor tenant in the web widget marketplace and it will be fun to stay in touch with you all as I move onto a new and exciting chapter in life.

While my six years in venture provided amazing exposure to great teams, companies, and learning, I felt compelled to try my hand, once again, on the operating side. The confluence of my personal aspirations and the quality of the Widgetbox board, investors, team, and market made this an opportunity I could not afford to pass up.

If you have the interest and time, I covered my reasons for the move via a guest post on Techcrunch today.

For those of you who read my blog for insights into the venture business, thank you for reading and commenting on my thoughts to date. From today, the blog will focus on my transition to an operating role, the consumer Internet space, the world of web widgets, and my mistakes and learnings as I look to work with my colleagues at Widgetbox in building a great company.

It should be fun!

Why Blog....and Widgets

Entrepreneur Magazine has a fun article on blogging and how it helps VCs find deals.

Brad and I are interviewed - he found Feedburner through his blog and I am very pleased to have found YieldBuild. If you are wondering why we blog, not only is it fun, an incredible forum for learning, but it is also a wonderful vehicle for meeting new people.

Also, I did a podcast (my first one ever) on widgets for Businessweek.com. They recently ran a series of articles on widgets and my talk is part of their CEO Guide to Technology.

Magic Number for SaaS Companies

Guest post by Lars Leckie. Another great one and real food for thought.


Josh James, CEO of Omniture (a Hummer Winblad portfolio company), gave an inspiring talk on building a SaaS company last week at the Opsource summit. Josh walked through the history of Omniture as a case study for building a SaaS company. He talked about the need to invest in the company with a firm hand on the wheel as the recurring revenue slowly built up over time. He outlined the different stages of evolution of the company:

1) Product: build a rock solid product. Prove you can sell it as founders before moving past this step.

2) Sell: Sell like crazy, build out a team, hire some QBSRs (Quota Bearing Sales Reps)

3) Retention: focus on churn and retention issues, hire more QBSRs

4) Marketing: spend on marketing, hire more QBSRs

The next phases, not surprisingly, also included hiring more QBSRs but interestingly it is not until later that investments in efficient infrastructure and operations hit their ToDo lists. This outline displays a strong focus on finding a product market fit and then adding gas to the fire as the market opened up. The key metric that Omniture used to decide how much gas to pour on the fire was the Magic Number.

The Magic Number

The magic number ("MN") is a metric that can be used to tell you the health of your company from the perspective of growing monthly recurring revenue ("MRR"). It is a common mode metric to compare companies MRR scaled by sales and marketing spend. The MN provides insight into the effectiveness of previous quarter Sales and Marketing spend on MRR growth. Your MN will be penalized if the spend is wasted (bad marketing, bad sales execution), if your churn is high or if the market has issues (saturation, competitive forces). It also has a very high correlation with Q/Q growth rates so in general, high Magic Numbers are good.

To calculate:

QRev[X] = Quarterly Recurring Revenue for period X
QRev[X-1] = Quarterly Recurring Revenue for the period preceding X
ExpSM[X-1] = Total Sales and Marketing Expense for the period preceding X

Magic Number = (QRev[X] – Qrev[X-1])*4/ExpSM[X-1]

For example, consider a hypothetical company with the following financials
Q1 Q2 Q3
Revenue (recurring total) 1M 1.2M 1.5M
S&M Expense 800K 900K

Then the magic number is 1.0 for the end of Q2 and 1.33 for Q3.

Fundamentally, the key insight is that if you are below 0.75 then step back and look at your business, if you are above 0.75 then start pouring on the gas for growth because your business is primed to leverage spend into growth. If you are anywhere above 1.5 call me immediately.

Josh provided the following gas-pouring throttle chart for SaaS companies to evaluate how much to invest in their go-to-market spend. The data on the charts if from Omniture and other public SaaS companies.

Calculate yours…and get back to me if it is interesting! For fun and extra credit take a look at difference in Magic Number for some of the public SaaS companies like Omniture and SuccessFactors. I can be reached at lars@humwin.com

Eat Your Own Dogfood

Guest post by Hummer Winblad's Lars Leckie.....Lars drove our firm's investment in Aria Systems and, most recently, vKernel.

Last week Phil Wainewright wrote a great post (as he always does) called SaaS vendors, eat your own dogfood, or die. In the post, he describes how SaaS companies need to embrace the SaaS services available in the ecosystem.

I support the viewpoint from the post that SaaS companies need to have religion and leverage SaaS in everyway they can – further, I believe if they don’t they leave themselves open for other SaaS companies to disrupt them. From discussions with the infrastructure management of many leading SaaS companies I often hear how they are forced to use some on-premise pieces on the back-end reluctantly. This has provided the motivation for a few of our SaaS infrastructure investments (eg. Aria – SaaS billing and customer management).

Phil’s title had me thinking along another important vein for SaaS companies…literally to eat THEIR own dogfood and use their own product. For example, Salesforce aggressively uses Salesforce to manage prospects, Omniture eats their own analytics for online marketing, Teleo uses their own product for recruiting and SuccessFactors brags about their own talent management. Luckily we don’t all work for tobacco companies…

My belief is that SaaS companies must use their product for a few reasons:

1) Point of View: it puts everyone in the company in the seat of the customer. This means that the internal teams will live the same pain, the same experience and the same leverage that you are espousing as a vendor. This POV extends the advantages SaaS has of bringing the vendor closer to the customer by putting the customer in the office next door.

2) Analytics: By using your own product you will think about the product extensions and depth of how to apply the benefits of analytics to build stronger products and best practices. SaaS companies have a huge edge with analytics so it makes sense to use them internally as well.

3) Sales Roadblock: a fair question for a prospect to ask would be, “if your solution is so great, why aren’t you using it?" SaaS vendors can do their sales team a great favor by getting ahead of this question.

Any interesting SaaS companies that are using their own product and want to reach out – I’d love to hear from you. Please email me at Lars@humwin.com.

Embracing Uncertainty

I spent this morning with George Kembel, Director of Stanford University's d. school, and a d. school Fellow, Kerry O'Connor.

The Stanford Institute of Design is an inter-disciplinary school that brings together business school students, engineers, and social scientists into an integrative, iterative, and immersive process of discovery.

The process is integrative in that multiple voices of feasibility (engineering), viability (business), and usability (social science) are baked into the process. The process is iterative in that the teams use rapid prototyping and user testing to discover product/need fit. The process is immersive in that the team is placed in the environment of the targeted user to observe and listen.

The core idea is that innovation must be cross-functional, A/B test driven, and that products are shaped gradually over time through a process of feedback rather than declaratively and upfront. The philosophy holds that rather than fight amongst the team about what to do, solve the argument via data-driven tests that are designed to answer key unknowns.

This implies that the only "right" part of a plan that it is "wrong." Moreover, rather than be paralyzed by that fact, the best teams harness the voices of all key departments in the company, let the user guide them, and invest themselves in a process of data-driven, prototype-driven discovery that slowly peels away the "right" answer.

The competitive position of the company is anchored more on whether it is a learning organization - flexible, nimble, user-driven - rather than whether its founders enjoyed a single epiphany of genius.

With respect to venture capital, the implications are interesting. Most teams pitch three-year plans and product roadmaps. Like the book the Black Swan holds, the odds of the forecasts being right are nil - fundamentally, given the forecast error inherent in any plan, the investment decision should not lean heavily on the proposed plan.

Rather, as George and his colleagues would argue, perhaps the investment should be predicated on a defined user/customer target, a process and fluency with A/B testing and prototyping, an integrated team, and an openness to discovery rather than a priori certainty.

VKernel and Hummer Winblad Join forces on Virtualization Infrastructure

Guest post by Lars Leckie.

Hummer Winblad is pleased to welcome Alex Bakman and his VKernel team to the Hummer Winblad family. We are very excited for the opportunities ahead and look forward to working together. The recent press release and further details can be found here.

Enterprise IT environments are undergoing one of the biggest shifts in 25 years – shifts that have not been seen since the move from mainframes to client-server. Big shifts in infrastructure open up large gaps in the current management solutions. Virtualized environments provide many benefits to the enterprise from flexibility to lower TCO but along with that have introduced a few headaches too…

- “vmotion” – servers growing legs and dynamically moving
- “vm sprawl” – servers multiplying at unmanageable rates
- Shared resources – performance, monitoring, resource accounting, etc
- Cost visibility – no longer tied to physical resources

vKernel is a new platform for system management in enterprises that are embracing virtual infrastructure to power their businesses. Enterprises IT managers face increasing challenges as virtualization spreads within the datacenter. vKernel provides an essential suite of virtual appliances tailored to meet the virtualized datacenter including chargeback and capacity planning management. These appliances require zero installation, are quick to deploy and provide insights within minutes.

More information can be found on vKernel’s website and webinars – or download the latest virtual appliance to try it out today.

Hummer Winblad’s enthusiasm in virtualization is captured by our investment in vKernel as well as several other companies including Scalent and Akimbi (acquired by VMWare).

OnMedia NYC

I will be in NYC this week for the OnMedia NYC conference.

The conference looks like an interesting intersection of technologists, advertisers, and media companies. I will be speaking Wednesday on the OnMedia Venture Capital and Seed Financing Workshop - 10 am at the Lotus Suite.

Venture Capital and Angel Financing Workshop
Moderator: Sam Angus, Partner, Fenwick & West
Will Price, Managing Director, Hummer Winblad Venture Partners
Dan Beldy, Managing Director, Steamboat Ventures
Jed Simmons , Chief Operating Officer, co-founder, Next New Networks
Mark Stevens, Partner, Fenwick & West


While in NYC and at the conference, I would love to meet with any founders looking for their A round. Please ping me at wprice at humwin.com to set up a time to meet.

HWVP Portfolio Job Site

Hummer Winblad just added a portfolio company jobs section to our web site.

The site currently lists 161 jobs. If you are looking to join a great start-up, please peruse at your leisure:)

Downturn - Now What?

My first year in venture was 2002. The great bull run of the 1990s was over, the dot com movement had come to a crashing halt, and Silicon Valley settled into a year of retrenchment and reckoning.

I remember long and painful board meetings where companies decided on reductions in force, recapitalizations and investor wash outs, and the slow, painful realization that the company's infrastructure, employee base, and positioning had gotten way too far in front of economic realities.

Friends who had accepted start-up offers thinking that they would go to HP or Oracle if things did not work out suddenly found their start-ups shutting down and HP and Oracle closed to new hires. Valuations seemed absurd in retrospect, companies with no sales were sitting on $50m-100m post-money valuations, $30m of paid-in-capital, and absolutely no chance of raising money; save a complete restart. A collective "what were we thinking" rolled through the valley.

The venture industry, like the tech industry at large, slowed down to not only digest "problem" portfolio companies, but also out of fear that large enterprises were no longer buying start-up products. The industry put $100bn to work in 2001 and only ~$20bn in 2002. It is fair to say that it was a bloodbath and billions of dollars were written-off and hundreds of companies quietly shut down. Venture investors largely sat on their hands and net new deals were very few and very far between.

As we all read the economic news this month, key questions are begged....how should an economic downturn impact venture investors behavior?, are there lessons one can learn from the dot com bust that can be applied in the current housing and credit bust?, will a recession hurt our companies, perhaps fatally?

If I take the last downturn as my guide, I can say with confidence that venture investors would be well suited to continue to invest right through the downturn - in 2002 and 2003 terrific companies were formed and funded at very reasonable valuations and with business models that reflected the demand for capital efficiency and economic viability.

Like Occam's Razor, recessions whittle away unnecessary and non-value-added businesses and the capital, purchase order, and resource scarcity inherent in downturns forges companies of real substance and durability.

I do believe, however, that certain classes of company will find fund raising very challenging in this environment. The last few years saw the rise and success of "field of dreams" web companies - ie companies where the business model and economics were secondary to utility, usage, and adoption. Perhaps most famously, Twitter is exploding with the principals publicly downplaying the need to define a business model. As consumers, the innovation possible via a "field of dreams" approach is wonderful, as investors, however, the market's patience to "uncover" the economic model over time and to, in the meantime, fund continued expansion and adoption is a major risk factor.

The last downturn saw the valley swing violently away from consumers to the enterprise - bastions of value, hard ROI, tangible value propositions, enterprise pain points and budgets, etc became the mainstay of investment decisions and the consumer, I kid you not, was literally a bad word.

Partner meetings where an investor said, "I have a great deal - it is a consumer play with great adoption metrics and a plan to work out the business model over the next 18 months," were a recipe for total and outright ridicule.

The valley became all enterprise, all the time.

Now, today's companies can leverage low-cost infrastructure and an ad-market in a way that their predecessors never could. However, I believe the following will occur: new deal investing will slow, perhaps radically, the enterprise segment will regain some of its former glory, consumer companies looking for capital in the absence of working business models will find raising money next to impossible, and employees will be much more scrutinizing of the companies they elect to join.

However, history suggests that capital efficient companies solving well-characterized pain points will continue to be great investments. Valuations, input costs (labor, rent, services) will fall, and future returns will show that 2008 and 2009 were great years to do start-ups. Similarly, in early 2009, as the consumer start-up market finds itself cut off from funding, it will be pay to make bold and brave investments in the consumer space.

None of us can predict the markets or future valuations, we all, however, can understand fundamentals. Businesses that solve real pain points with disruptive technology, a huge value/price advantage, and a scalable business model will work - the kiss of death, however, will be getting the capital structure ahead of those very same fundamentals. Failure is often a function of too much capital and too high prices suddenly running into economic expectations that are materially reduced with respect to market size, market growth, and trading multiples.

To survive, one may indeed need capital. The trick is to stay lean and not to overfund and overvalue companies where the investment only "works" if it eventually trades at 8x revenue and never needs another round of funding.

It way well be that Slide raising $55m from mutual fund companies at $500m+ pre-money will be the "what were we thinking" moment of the current cycle. I think, however, the investor who leads a $4 on $4m Series A in a company with a differentiated technology and a direct tie to hard ROI will feel calm in the storm.

The Wadget Revolution - How Brands Can Harness Widgets

Tomorrow night (1/24) I will be moderating a panel titled "The Wadget Revolution" sponsored by the Bay Area Interactive Group.

The title, a play on widget and gadget, will address the widget revolution and how marketers can best take advantage of this emerging channel.

I expect a lively discussion on how brands can use widgets to reach consumers and how publishers can use widgets to monetize their content.

Please find details on the panel below.

The Wadget Revolution:

The event is at the St. Francis Hotel on Powell Street just off Union Square in downtown San Francisco. The Stockton Sutter parking garage is close by.

Abstract:
The digital channels are engaging. It's that simple. Engagement remains elusive as a singular dynamic, but seems more a catch-all descriptor/metric for a variety of mechanisms that deliver utility, information and entertainment to audiences in new ways. One of the "channels" within the broader digital mix that saw tremendous growth in '07 and really begins its sophomore year in 2008 is the "Wadget" (ok, we couldn't decide between Widget and Gadget, so we compromised). They seemed to come out of nowhere, or to be coming suddenly from everywhere and we all nodded our heads in approval (though many of us grabbed a friend and remarked "what the heck are these things anyway?". It's time to shed some light on this.

What are Wadgets, what do they do, who makes them, who uses them and most importantly, how do marketers harness the power of them are the questions we're going after at our next event on Jan 24.

We'll have some masters of Wadgetry talking about the phenomenon from their perspective and showing all of us how they concept, build, deploy, engage and SELL their Wadget genius…and then they'll take your questions, so come prepared.

The panelists are:
· Will Price – Hummer Winblad

· Donna Stokes – HP

· Heidi Henson – Rock You

· Ken Barbieri – Washington Post Newseek Interactive

· Kevin Barenblatt – Context Optional

Martin Plaehn's Quick Hits: Do's and Don'ts of Entrepreneurship

I spent last Thursday and Friday in Utah attending the University Venture Fund's Annual Conference.

The conference brought undergraduate and graduate students from around the country interested in entrepreneurship and venture capital to SLC for a two-day event. The speakers included Bill Price (co-founder of TPG), Brad Feld, and other noted investors and entrepreneurs.

A side benefit - the Sundance Film Festival started the night we arrived and Brad and I got a chance to the see the world premier of In Bruges.

One of the panelists was Martin Plaehn, a former HWVP company CEO and current CEO of Utah-based Bungee Labs. Martin is a very sharp guy and he passed around his list of start-up do's and dont's. I thought they were terrific and include them below.

Martin Plaehn’s Quick Hits: Do’s and Don’ts of Entrepreneurship

Do’s

1. Do ensure for yourself (as founder or chief) that you are addressing a real market and a sustainable one; where the exchange of value is transacted and measured in US currency
2. Do only hire for pre-identified expertise, operating need, and the energy to accomplish excellence; if you get more, great; don’t hire otherwise
3. Do always know your cash level, weekly cash spend and receipt rates, cash-runs-out date, and close-up liabilities amounts; start finding funding choices when you hit t-minus 6 months till operating cash runs out
4. Do money deals with money people (e.g. Angels, VC’s, banks, and credit unions); do product deals with product people (eg. Commercial companies); and do risk deals with risk people (e.g. Insurance companies). Don’t get these confused. If a product company wants to invest in your company, can they afford to take the whole thing? If not, then not.
5. Do ensure that at least one of your early formal investors has the financial wherewithal to keep investing in subsequent increasing rounds many years down the road; do make sure your different investors are really compatible
6. Do always accumulate choice; two by definition, three of four is better; then make decisions and have a back-up
7. Do let the stress of overload and/or capacity strain the triggers for expansion; demand flexing the edges of the system is usually the truest sign of real growth
8. Do track revenue and cost per employee; have trigger thresholds for when to add staff or subtract. Human efficiency and innovation is what creates value

Don’ts

1. Don’t hire of goodness of heart or friendship
2. Don’t hire anyone who you and your team are not genuinely excited about
3. Don’t tolerated mediocre engineers; for that matter, mediocre anyone. An early sign of mediocrity is when you downgrade tasks and expectations to align with an employee
4. Don’t count on your investors to take care of you when things get rough and/or protracted
5. Don’t over interpret or count on the stated operating “value-add” from investors during their solicitations during fundraising
6. Don’t build out your staff or infrastructure in expectation of rapid growth; be strong enough and tolerant of market back-pressure or order/service backlog
7. Don’t keep the same sales and marketing execs if the business isn’t growing or changing for growth; no sales and marketing VP was ever fired prematurely
8. Don’t over delegate to consultants, accountants, or lawyers; even the great ones are only as good as you are as an engaged client; read and understand everything; if left alone, you must have a point of view, right or wrong


Thanks to the students at BYU, Univ of Utah, and from around the country who worked hard to make the event a real success.

Subprime failure and Prediction markets

What do the subprime meltdown and Iraq have in common?

Massive failure due to forecast errors.

I have written in prior posts about my respect for Nassim Taleb's book Black Swan, which speaks to the enduring inability of humans to recognize the fallibility of forecasts and linear thinking.

With respect to the subprime mess, Merrill Lynch, Morgan Stanley, and Citibank, alone, have announced $36+bn in write-downs to date. The most technically advanced companies in the country failed to live up to their raison d'etre: to price and manage risk.

Their failure is a powerful reminder that sophisticated business processes, risk management models, and management teams are no panacea if the assumptions that architect their systems are wrong.

For example, risk management is based on the premise that events in financial markets exhibit normal/Gaussian distributions. Value-at-risk models calculate the maximum loss not exceeded with a given probability/confidence interval over a given period of time. For example, the risk manager will report that with a 95% confidence the maximum capital at risk is $x. The losses in the financial sector are a powerful reminder of how rare events blow up the models and with them the business processes, risk controls, and balance sheets of their creators.

In supply chains, forecast errors compound across the supply chain in a phenomena known as the bullwhip effect resulting in excess inventory and a costly failure to match supply with demand.

Examples of forecast errors are legion - product ship dates, sales forecasts, demand forecasts, value-at-risk models, elections, stock price predictions, etc. A common remedy to forecast errors is to increase the liquidity of guesses - the greater the number of independent predictions the more accurate, in aggregate, the final prediction.

We can see this phenomena in today's social web - the web is rewriting the rule book on how we program content- rather than a top-down, command economy approach, where programmers decide what we should read, watch, and discuss - users are leverage social media sites to "reprogram" content. Communities, like liquid markets, vote with their time, comments, and clicks and the best of the web gets pushed to the top. Innovative companies are leveraging the wisdom of the community to ensure a better match between supply and demand.

So, where am I going with this post? Prediction markets are nascent business tools that allow employees to buy or sell certain business events - probability of product shipping on time, unit volumes to ship in the quarter, annual bookings, prioritizing new business ideas - and thereby allow their employers to improve the quality of information factored into predictions. The formal chain of command is infamous for distorting and hiding information - it is no wonder that CEOs are flying blind...their business systems are based on flawed models and their teams are incapable of accurately reporting the true state of affairs. Chinese whispers corrupts information moving up the chain and smart people are stuck making decisions with bad, misleading data.

We will never be able to predict the future, however, all of us should consider how we can open up our decision making processes to allow for non-biased, comprehensive input that allows the wisdom of our organizations to weigh in on key decisions - better inputs enable better capital and resource allocation decisions and can help avoid disaster.

While prediction markets are much less complex than advanced prediction algorithms, in the spirit of less is more, the front line sales people, developers, mortgage loan officers, etc will always have better information than the central corporate staff. What seems to be failing corporate America is an open framework for capturing that knowledge in a non-biased, confidential manner.

For centuries soldiers have complained that the central staff had no idea what was happening on the ground - the science, tools, and applications, however, exist today that allows for the harvesting of the collective wisdom of the group.

I predict, yes am I aware of the irony, that in 2008 corporate American will come to adopt one of the mainstays of web 2.0 - ie applications that leverage the tacit or explicit wisdom of a community. Prediction markets are needed to help unlock the tacit knowledge of organizations and to lessen the colossal forecast errors now reverberating through our economy.

Content Community on Innovation, Start-ups, and Venture Capital

I write to invite readers of this blog to join the Innovation, Startups, and Venture Capital content community powered by Corank.

The site is dedicated to sharing ideas, books, best practices, news, etc on entrepreneurship, venture capital, and new company formation.

To join Corank, click here. To add the RSS feed, click here. To add a Firefox bookmarklet to post articles to the community, click here.

I hope that this site fosters the sharing of ideas that will help all of us. Please do join and share content that matters to you.

A widget of the current top content stories follows:

New Deal Checklist

Pilots, no matter how many flying hours they have, never take off without checking their pre-flight checklist. The risks of oversight, missing a mechanical or procedural failure, etc are too severe not to ensure all systems are go.

I put together an analog to the pre-flight checklist - a new deal checklist - that I hope will similarly help avoid losses due to "pilot error."

In the spirit of transparency, please see my list below and let me know if you think I am missing any core issues.

1. Can I understand the business?
1. what is the product?
2. what is the value?
3. who is the buyer and why would they buy?
4. can the buyer quantify the value? If so, what unit?
2. Is the market attractive?
1. Growth rates?
2. Profitability?
3. Is there a fundamental disruption that is the basis for the opportunity and limits the incubments' competitive repsonse?
1. Market --> SaaS, Open Source
2. Product --> core innovation
4. Is the product delivered in a buyer appropriate way?
1. open source for infrastructure
2. SaaS for a business app buyer
3. REST/SOAP/JavaScript for a web service
5. Is the core value tied to a technical innovation?
1. ex. HWVP's portfolio company examples = Baynote's collective intelligence algorithms and Move Networks' streaming protocols
6. Are their frictions in....?
1. time and resources required to test the value proposition?
2. time and resources required to deploy?
3. time and risk to realize value?
7. Is there a good market comparable for both the business model and the exit multiple?
8. What unit scales the revenue model?
1. page views, sales heads, downloads, sessions?
9. Is the architecture scalable and does it leverage the best available infrastructure - EC2, S3, Rackspace, etc?
   
10. Are there exogenous dependencies?
1. carrier or MSO deals?
2. RFID deployments, etc?
11. Is there a market master?
1. WMT or MSFT or Dell....
2. Who is the incumbent? How will they react?
12. Who are the other new companies in the space?
13. Is the team able and honest?
1. Prior track record of working together?
14. Is the CEO special?
1. What is his/her motivation, passion, strength?
2. Where do they need help and complement?
15. Are the round size and pre-money reasonable?
16. Is the model reasonable (profit margins, growth, burn)?
17. Is the plan capital efficient?
1. how much money for 18 months?
2. margin of safety?
3. are their clear milestones in the plan that will allow for an objective assessment of value creation - ie a new investor
   
18. Can this be a homerun?
19. What are the core risks?
1. why will the company fail? is their a plan in place to mitigate such risks?
   
20. What are the KPIs - ie leading indicators to measure and track the company's progress?
    
21. Is the cap table clean and the paid-in capital reasonable?
1. Is the progress to date commensurate with the money in?
2. Has the money in to date been productive?
   

While I am sure there are risk and questions not raised above, the goal is to systematically measure a prospect against a consistent analytical framework that, hopefully, ensures smooth take-offs, flights, and landings.